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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------X In re: LIBOR-Based Financial Instruments Antitrust Litigation. MEMORANDUM AND ORDER 11 MD 2262 (NRB) THIS DOCUMENT RELATES TO: All Cases ----------------------------------------X NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE

I. Introduction These cases arise out of the alleged manipulation of the London InterBank that Offered been Rate called (“LIBOR”), “the an interest most rate

benchmark number.”

has

world’s

important

British Bankers’ Ass’n, BBA LIBOR: The World’s Most

Important Number Now Tweets Daily (May 21, 2009), http://www. bbalibor.com/news-releases/bba-libor-the-worlds-most-importantnumber-now-tweets-daily. As numerous newspaper articles over

the past year have reported, domestic and foreign regulatory agencies have already reached settlements with several banks

involved in the LIBOR-setting process, with penalties reaching into the billions of dollars. The cases presently before us do not involve governmental regulatory action, but rather are private lawsuits by persons who allegedly suffered harm as a result of the suppression of

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LIBOR.

Starting in mid-2011, such lawsuits began to be filed in On August 12,

this District and others across the country.

2011, the Judicial Panel on Multidistrict Litigation transferred several such cases or from other districts to this Court In for re

apparent to us that information relating to this case would continue indefinitely to come to light, that new complaints

would continue to be filed, and that waiting for the “dust to settle” would require an unacceptable delay in the proceedings. Therefore, on August 14, 2012, we issued a Memorandum and Order imposing a stay on all complaints not then subject to defendants’ motions to dismiss, pending the present decision. In re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11 MD 2262, 2012 WL 3578149 (S.D.N.Y. Aug. 14, 2012). Although we

encouraged the prompt filing of new complaints, see id. at *1 n.2, we determined that the most sensible way to proceed would be to wait on addressing those cases until we had clarified the legal landscape through our decision on defendants’ motions. For the reasons stated below, defendants’ motions to

Because each amended complaint asserts only one federal antitrust claim, we will refer in the singular to plaintiffs’ federal antitrust “claim.” Similarly, because each of the Schwab amended complaints asserts one RICO claim and one Cartwright Act claim, we will refer in the singular to the Schwab plaintiffs’ RICO “claim” and Cartwright Act “claim.”

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manipulation claims, defendants’ motions are granted in part and denied in part. plaintiffs’ plaintiffs’ Finally, we dismiss with prejudice the Schwab Act claim, claim and and we the decline exchange-based to exercise

Cartwright state-law

supplemental jurisdiction over the remaining state-law claims. II. Background Despite the legal complexity of this case, the factual

allegations are rather straightforward.

Essentially, they are

as follows: Defendants are members of a panel assembled by a banking trade association to calculate a daily interest rate benchmark. Each business day, defendants submit to the

association a rate that is supposed to reflect their expected costs of borrowing computes U.S. and dollars from other the banks, and of the

association

publishes

average

these

submitted rates.

The published average is used as a benchmark According to

interest rate in financial instruments worldwide.

plaintiffs, defendants conspired to report rates that did not reflect their good-faith estimates of their borrowing costs, and in fact submitted artificial rates over the course of thirtyfour months. rates, the Because defendants allegedly submitted artificial final computed average was also artificial.

Plaintiffs allege that they suffered injury because they held positions in various financial instruments that were negatively

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affected by defendants’ alleged fixing of the benchmark interest rate. As one would concerns expect, whether the parties’ primary to factual submit

disagreement

defendants

conspired

artificial rates and whether they in fact did so. have included in their their complaints allegations extensive on these

Plaintiffs that and

evidence points,

allegedly

supports

defendants, were this case to proceed to trial, would surely present evidence to the contrary with equal vigor. present task is but not rather to to resolve decide the However, our factual to

parties’

disagreements, dismiss. that,

defendants’

motions

These motions raise numerous issues of law, issues they require serious legal analysis, may be

although

resolved without heavy engagement with the facts.

Therefore, we

will set out in this section only those factual allegations necessary to provide context for our decision, and will cite further allegations later as appropriate. begin by explaining alleged what LIBOR is and it This section will will then discuss injured

defendants’ plaintiffs.

misconduct

and

how

allegedly

A. LIBOR LIBOR British is a benchmark interest (the rate disseminated a “leading by the

Bankers’

Association

“BBA”),

trade

association for the U.K. banking and financial services sector.”

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OTC

Am.

Compl.

¶

42

(quoting

BBA,

About

Us,

http://www.bba.org.uk/about-us (last visited Mar. 29, 2013)).2 LIBOR is calculated for ten currencies, including the U.S.

dollar (“USD LIBOR”). the BBA has assembled are

Id. ¶ 43. a panel in of

For each of the currencies, banks whose the interest benchmark rate (a

submissions

considered

calculating

“Contributor Panel”); each member of the Contributor Panel must be a bank that “is regulated and authorized to trade on the London money market.” Id. ¶ 46. The Contributor Panel for USD

LIBOR, the only rate at issue in this case, consisted at all relevant times of sixteen banks. The defendants here, or one of

their affiliates, are each members of that panel. Each business day, the banks on a given LIBOR Contributor Panel answer the following question, with regard to the currency for which the bank sits on the Contributor Panel: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?”
2

Id. ¶ 48.

Importantly, this question does not

The six amended complaints subject to defendants’ motions to dismiss are essentially identical in their allegations regarding the background of this case and the misconduct that defendants allegedly committed. Therefore, in section A, providing background on LIBOR, and section B, discussing defendants’ alleged misconduct, we will cite exclusively to the OTC Amended Complaint, with the understanding that parallel allegations are contained in most or all of the other amended complaints. By contrast, the primary areas in which the amended complaints differ are in their allegations of who the plaintiffs are, how they were allegedly injured, and what claims they are asserting against defendants. Accordingly, in Part C, when we discuss plaintiffs’ alleged injury, we will explore the allegations particular to specific amended complaints.

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ask banks to report an interest rate that they actually paid or even an average of interest rates that they actually paid;

rather, it inquires at what rate the banks “predict they can borrow unsecured funds from other banks in the London wholesale money market.” with regard to Id. ¶ 44. fifteen Each bank will answer this question maturities, or tenors, ranging from

After receiving quotes from each bank on a given panel, Thomson Reuters determines the LIBOR for that day (the “LIBOR fix”) by ranking the quotes for a given maturity in descending order and calculating the arithmetic mean of the middle two quartiles. OTC Am. Compl. ¶ 48; DOJ Statement ¶ 4. For

example, suppose that on a particular day, the banks on the Contributor Panel for U.S. dollars submitted the following

middle two quartiles would be: 3.8%, 3.8%, 3.7%, 3.6%, 3.5%, 3.5%, 3.4%, and 3.3%. The arithmetic mean of these quotes,

3.575%, would be the LIBOR fix for that day. Thomson Reuters publishes the new LIBOR fix each business day by approximately 11:30 AM London time. In addition to publishing the final fix, DOJ Statement ¶ 5. “Thomson Reuters

publishes each Contributor Panel bank’s submitted rates along with the names of the banks.” Id. Therefore, it is a matter of

public knowledge not only what the LIBOR fix is on any given business day, but also what quote each bank submitted and how the final fix was calculated. LIBOR is “the primary benchmark for short term interest rates globally.” OTC Am. Compl. ¶ 44. For example, market

actors “commonly set the interest rate on floating-rate notes [in which the seller of the note pays the buyer a variable rate] as a spread against LIBOR,” such as LIBOR plus 2%, and “use LIBOR as a basis to determine the correct rate of return on short-term fixed-rate notes [in which the seller of the note pays the buyer a fixed rate] (by comparing the offered rate to LIBOR).” In short, LIBOR “affects the pricing of trillions of Id. ¶ 45.

dollars’ worth of financial transactions.”

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B. Defendants’ Alleged Misconduct According systematically to plaintiffs, LIBOR “Defendants during the collusively Class and

suppressed

Period,”

defined as August 2007 to May 2010.

OTC Am. Compl. ¶ 2; see Defendants allegedly

also id. ¶¶ 4-8; Exchange Am. Compl. ¶ 1.

did so by each submitting an artificially low LIBOR quotes to Thomson Reuters each business day during the Class Period. Am. Compl. ¶ 6. Plaintiffs argue that defendants had two primary motives for suppressing LIBOR. First, “well aware that the interest OTC

rate a bank pays (or expects to pay) on its debt is widely, if not universally, viewed as embodying the market’s assessment of the risk associated with that bank, Defendants understated their borrowing costs (thereby suppressing LIBOR) to portray

themselves as economically healthier than they actually were.” OTC Am. Compl. ¶ 5. Moreover, “because no one bank would want

to stand out as bearing a higher degree of risk than its fellow banks, each Defendant shared a powerful incentive to collude with its co-Defendants to ensure it was not the ‘odd man out.’” Id. ¶ 52. Second, “artificially suppressing LIBOR allowed

Defendants to pay lower interest rates on LIBOR-based financial instruments that Defendants sold to investors, including

[plaintiffs], during the Class Period.” ¶ 53.

Id. ¶ 5; see also id.

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Plaintiffs devote the bulk of their complaints to amassing evidence that LIBOR was fixed at artificially low levels during the Class Period. For one, plaintiffs offer statistical

evidence showing that LIBOR diverged during the Class Period from benchmarks that it would normally track. over as First, the each Class by A

defendant’s Period from

LIBOR its

quotes

allegedly of

diverged default,

probabilities

calculated

experts retained by plaintiffs.

OTC Am. Compl. ¶¶ 57-66.

bank’s probability of default should correlate positively with its cost of borrowing, based on the basic principle that

between USD-LIBOR panel bank’s LIBOR quotes and [probabilities of default] during 2007 and 2008.” that Id. Second, LIBOR diverged during the Class Period from another comparable benchmark, the Federal Reserve Eurodollar Deposit defendants “severely depressed Id. ¶ 66. LIBOR during This suggests that time.”

Like LIBOR, the Fed Eurodollar Rate “reflect[s] the rates at which banks in the London Eurodollar money market lend U.S. dollars to one another,” OTC Am. Compl. ¶ 68, though because LIBOR is based on the interest rate that banks expect lenders to offer them (an “offered rate”), whereas the Fed Eurodollar Rate is based on what banks are willing to pay to borrow (a “bid rate”), “the Fed’s Eurodollar rate should be less than LIBOR.” Scott Peng et al., Citigroup, Special Topic: Is LIBOR Broken?, Apr. 10, 2008. However, plaintiffs’ experts found that LIBOR

was lower than the Fed Eurodollar Rate, and that individual defendants’ LIBOR quotes were also lower than the Fed Eurodollar Rate, for most of the Class Period. OTC Am. Compl. ¶¶ 67-88.

According to plaintiffs, this finding suggests not only that “suppression of LIBOR occurred during the Class Period,” but also that defendants conspired to suppress LIBOR, as “[t]he

sustained period during which the [Fed Eurodollar Rate] – LIBOR Spread fell and remained starkly negative . . . is not plausibly achievable absent collusion among Defendants.” Id. ¶ 88.

In addition to the above statistical analysis, plaintiffs cite “publicly available which analyses by academics indicate and ILBOR other was

commentators”

“collectively

artificially suppressed during the Class Period.”

Id. ¶ 89.

For instance, plaintiffs discuss studies that found “variance between [banks’] LIBOR quotes and their contemporaneous cost of

quote submitted by the 16 banks,” which “suggests Defendants collectively depressed LIBOR by reporting the lowest possible rates that would not be excluded from the calculation of LIBOR on a given day. Id. ¶ 105; see also id. ¶¶ 105-13.

Plaintiffs further observe that “during 2008 and 2009 at least some of [defendants’] LIBOR quotes were too low in light of the dire financial circumstances the banks faced.” 128. Id. ¶

For instance, the LIBOR submissions of Citigroup, RBS, and

WestLB were suspiciously low given the financial troubles facing those banks during the Class Period. Id. ¶¶ 128-38.

Finally, plaintiffs allege that they were not aware of defendants’ manipulation “until March 15, 2011, when UBS

released its annual report 20-F stating that it had received subpoenas from the Department of Justice, the SEC, the CFTC, as well as an information Agency, all request from the to Japanese its Financial rate

Supervisory

relating Id. ¶ 205.

interest

submissions to the BBA.” these investigations by to UBS,

UBS had explained that there own or were improper with

addressed acting at

“whether on its

attempts others,

either

together

manipulate

LIBOR

certain

times.”

Plaintiffs

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maintain that, even though several news articles had warned as early as spring 2008 that LIBOR was suspiciously low,3 these warnings did not provide notice of defendants’ alleged

manipulation of LIBOR because they were counteracted by public statements from the BBA and individual defendants that provided alternative explanations for why LIBOR had failed to track

comparable benchmarks.

Id. ¶¶ 192-204.

Following the filing of plaintiffs’ amended complaints on April they 30, had 2012, reached several governmental with agencies disclosed that to

settlements of

Barclays LIBOR

with

regards

Barclays’

submission

artificial

quotes.

Although

plaintiffs were not able to incorporate information from these settlements into their amended complaints, they have submitted to the Court, in the course of opposing defendants’ motions to dismiss, settlement documents issued by the Criminal Division of the Department (the of Justice, the Commodities United See DOJ Futures Trading

These articles will be discussed in detail below in the context of whether plaintiffs’ commodities manipulation claims are time-barred.

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These agencies found that Barclays had engaged in “wrongful conduct spann[ing] from at least 2005 through at least 2009,” at times “on an almost daily basis.” CFTC Order 2. Specifically:

During the period from at least mid-2005 through the fall of 2007, and sporadically thereafter into 2009, Barclays based its LIBOR submissions for U.S. Dollar (and at limited times other currencies) on the requests of Barclays' swaps traders, including former Barclays swaps traders, who were attempting to affect the official published LIBOR, in order to benefit Barclays' derivatives trading positions; those positions included swaps and futures trading positions . . . . Id. The agencies documented instances in which Barclays’ LIBOR had accommodated requests from traders for an

submitters

artificially high LIBOR quote as well as instances where the LIBOR submitters had accommodated requests for an artificially low LIBOR quote. manipulation to See, e.g., id. at 7-11. benefit daily trading In addition to this leading to

positions,

either an artificially high or artificially low LIBOR quote, the agencies found that from “late August 2007 through early 2009,” Barclays’s LIBOR submitters, “[p]ursuant to a directive by

certain members of Barclays’ senior management,” consistently submitted artificially low LIBOR quotes “in order to manage what [Barclays] believed were inaccurate and negative public and Id.

media perceptions that Barclays had a liquidity problem.” at 3.

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C. Plaintiffs’ Alleged Injury As discussed above, the present motions to dismiss apply to the amended complaints of four groups of plaintiffs: the OTC, bondholder, exchange-based, and Schwab plaintiffs. Each of

these groups alleges that it suffered a distinct injury as a result of defendants’ alleged misconduct. group in turn. 1. OTC Plaintiffs The lead OTC plaintiffs are the Mayor and City Council of Baltimore (“Baltimore”) and Police and the City Fund of New Britain We will address each

Firefighters’

Benefit

(“New

Britain”).

Baltimore “purchased hundreds of millions of dollars in interest rate swaps directly from at least one Defendant in which the rate of return was tied to LIBOR.” OTC Am. Compl. ¶ 12. New

Britain “purchased tens of millions of dollars in interest rate swaps directly from at least one Defendant in which the rate of return was tied to LIBOR.” Id. ¶ 13. These plaintiffs seek to

represent a class of “[a]ll persons or entities . . . that purchased in the United States, directly from a Defendant, a financial instrument that paid interest indexed to LIBOR . . . any time during the [Class Period].” plaintiffs, they suffered injury as Id. ¶ 34. a result of According to defendants’

alleged misconduct because their financial instruments provided that they would receive payments based on LIBOR, and when

2. Bondholder Plaintiffs The lead bondholder plaintiffs are Ellen Gelboim

(“Gelboim”) and Linda Zacher (“Zacher”).

Gelboim “is the sole

beneficiary of her Individual Retirement Account that during the Class Period owned a . . . LIBOR-Based Debt Security issued by General Electric Capital Corporation.” ¶ 15. Bondholder Am. Compl.

Similarly, Zacher “is the sole beneficiary of her late

husband’s Individual Retirement Account that during the Class Period owned a . . . LIBOR-Based Debt Security issued by the State of Israel.” Id. ¶ 16. These plaintiffs seek to represent

the following class: [A]ll [persons] who owned (including beneficially in ‘street name’) any U.S. dollar-denominated debt security (a) that was assigned a unique identification number by the [Committee on Uniform Securities Identification Procedures] system; (b) on which interest was payable at any time [during the Class Period]; and (c) where that interest was payable at a rate expressly linked to the U.S. Dollar Libor rate. Id. ¶ 1; see also id. ¶ 198. This class excludes holders of

debt securities to the extent that their securities were “issued by any Defendant as obligor.” Id. Plaintiffs allege that they

suffered injury as a result of defendants’ alleged misconduct because they “receiv[ed] manipulated and artificially depressed

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amounts

of

interest

on

[the]

[d]ebt

[s]ecurities

they

owned

during the Class Period.”

Id. ¶ 14.

3. Exchange-Based Plaintiffs In order to place the exchange-based plaintiffs’ claims in context, we will first provide a brief overview of Eurodollar futures contracts. We will then summarize who plaintiffs are

and how they allege they were injured. a. Eurodollar Futures Contracts A futures contract “is an agreement for the sale of a

the “short,” agrees to deliver the commodity specified in the contract to the buyer, known as the “long,” on the delivery date. See id. However, in most cases, the commodity never

actually changes hands; rather, “[m]ost investors close out of their positions before the delivery dates,” id., such as by entering into offsetting contracts whereby the commodity

delivery requirements cancel out and “[t]he difference between the initial purchase or sale price and the price of the

offsetting transaction represents the realized profit or loss,” Exchange Am. Compl. ¶ 208. Although many futures contracts are based on an underlying commodity that is a physical good, such as copper, others are

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not.

One

such

futures

contract

is

a

Eurodollar

futures

contract, which is “the most actively traded futures contract[] in the world.” Id. ¶ 201; see also DOJ Statement 4 (“In 2009,

according to the Futures Industry Association, more than 437 million Eurodollar futures contracts were traded . . . .”).

Eurodollar futures contracts, traded on the Chicago Mercantile Exchange (the “CME”), Exchange Am. Compl. ¶ 201, are based on an “underlying instrument” of a “Eurodollar Time Deposit having a principal value of USD $1,000,000 with a three-month maturity.” CME Group, Eurodollar Futures: Contract Specifications,

Finally, options on Eurodollar futures contracts are also traded on the CME. purchase a “call,” Exchange Am. Compl. ¶ 210. which gives him “the A trader might but not the

right,

obligation, to buy the underlying Eurodollar futures contract at a certain price - the strike price.” Id. A trader could also

purchase a “put,” giving him “the right, but not the obligation, to sell the underlying Eurodollar futures contract at the strike price.” affected Id. by The price at which a Eurodollar option trades “is the underlying price of the Eurodollar futures

contract, which, in turn, is directly affected by the reported LIBOR.” Id. b. Plaintiffs and Their Alleged Injury There are seven lead exchange-based plaintiffs. Plaintiff

Class Period, id. ¶ 214, and “the direct and foreseeable effect of the Defendants’ intentional understatements of their LIBOR rate was to cause prices Plaintiffs for and CME the Class to pay

supracompetitive contracts.”

[their]

Eurodollar

futures

Id. ¶ 217.

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4. Schwab Plaintiffs The last group of plaintiffs comprises the Schwab

plaintiffs.

As discussed above, these plaintiffs do not seek to

represent a class, but rather have filed three separate amended complaints. First, the “Schwab Bank” amended complaint has

three plaintiffs.4

Plaintiff The Charles Schwab Corporation is a

Delaware corporation with its principal place of business in California. Schwab Bank Am. Compl. ¶ 17. Plaintiff Charles

Schwab Bank, N.A., is a national banking association which is a wholly-owned subsidiary of The Charles Schwab Corporation and is organized under the laws of Arizona, with its principal place of business in Nevada. Id. ¶ 18. Finally, Plaintiff Charles

Schwab & Co., Inc., is a California corporation and a wholly owned through subsidiary its of The Charles Schwab Corporation, manages which the

division

Charles

Schwab

Treasury,

investments of Charles Schwab Bank, N.A. these plaintiffs “purchased or held

Id. ¶ 19. LIBOR-based

Each of financial

instruments during the [Class Period].”

Id. ¶¶ 17-19.

Second, the “Schwab Bond” amended complaint also has three plaintiffs.5
4

YieldPlus Fund have passed to Plaintiff Schwab YieldPlus Fund Liquidation Trust.” held LIBOR-based Id. Each of these plaintiffs “purchased or instruments during the [Class

financial

Period].”

Id. ¶¶ 17-23.

Plaintiffs argue that they were injured as a result of defendants’ alleged suppression of LIBOR, which “artificially depress[ed] the value of tens of billions of dollars in LIBORbased financial instruments the [plaintiffs] held or purchased.” Id. ¶ 194. These financial instruments included floating-rate

instruments paying a rate of return directly based on LIBOR, id. ¶ 195, and fixed-rate instruments which plaintiffs decided to purchase by comparing the instruments’ fixed rate of return with LIBOR, id. ¶ 197. Plaintiffs purchased from both floatingand from

fixed-rate

instruments

directly

defendants,

subsidiaries or other affiliates of defendants, and from third parties. Id. ¶¶ 196, 198-99. III. Discussion Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To avoid dismissal,

a complaint must allege “enough facts to state a claim to relief that is plausible on its face.” U.S. 544, 570 (2007). claims across the line Bell Atl. Corp. v. Twombly, 550

Where plaintiffs have not “nudged their from conceivable to plausible, their

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complaint must be dismissed.”

Id.

In applying this standard, a

court must accept as true all well-pleaded factual allegations and must draw all reasonable inferences in favor of the

‘matters of which judicial notice may be taken, or documents either in plaintiff['s] possession or of which plaintiff[] had knowledge and relied on in bringing suit.’” Halebian v. Berv,

644 F.3d 122, 130 n.7 (2d Cir. 2011) (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)). In the case at bar, defendants have moved to dismiss all of plaintiffs’ roughly claims. on Our the analysis will of proceed in an order

Because we find that the third ground, that plaintiffs lack antitrust standing, is a sufficient reason to dismiss

plaintiffs’ antitrust claims, we need not reach the remaining grounds. Section 1 of the Sherman Act provides: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” (2006). 15 U.S.C. § 1

The private right of action to enforce this provision

is established in section 4 of the Clayton Act: Except as provided in subsection (b) of this section [relating to the amount of damages recoverable by foreign states and instrumentalities of foreign states], any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.

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Id. § 15. defendants’

Here, plaintiffs claim that they were injured by alleged conspiracy in restraint of trade, in

violation of section 1 of the Sherman Act, and accordingly bring suit pursuant to section 4 of the Clayton Act. To have standing under the Clayton Act, a private plaintiff must demonstrate (1) antitrust injury, and (2) “that he is a proper plaintiff in light of four ‘efficient enforcer’ factors” derived from the Supreme Court’s decision in Associated General Contractors v. California State Council of Carpenters (“AGC”), 459 U.S. 519 (1983). In re DDAVP Direct Purchaser Antitrust Here, plaintiffs have

Litig., 585 F.3d 677, 688 (2d Cir. 2009).

not plausibly alleged that they suffered antitrust injury, thus, on that basis alone, they lack standing. AGC “efficient enforcer” factors. 1. Antitrust Injury a. Antitrust Injury Defined As articulated by the Supreme Court in Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990) (“ARCO”), “antitrust injury” refers to injury “attributable to an anticompetitive aspect of the practice under scrutiny.” Id.; see We need not reach the

also Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977) (“Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to

prevent and that flows from that which makes defendants' acts

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unlawful.

The injury should reflect the anticompetitive effect

either of the violation or of anticompetitive acts made possible by the violation.”).7 Although conduct in violation of the

Sherman Act might reduce, increase, or be neutral with regard to competition, a private plaintiff can recover for such a

violation only where “the loss stems from a competition-reducing aspect or effect of the defendant's behavior.” at 344 (emphasis in original). ARCO, 495 U.S.

Moreover, it is not enough that

defendant’s conduct disrupted or distorted a competitive market: “Although all antitrust violations . . . ‘distort’ the market, not every loss stemming from a violation counts as antitrust injury.” Id. at 339 n.8. Therefore, a plaintiff must

demonstrate not only that it suffered injury and that the injury resulted from defendants’ conduct, but also that the injury

resulted from the anticompetitive nature of defendant’s conduct. See Nichols v. Mahoney, 608 F. Supp. 2d 526, 543-44 (S.D.N.Y. 2009). The rationale, of course, is that the Clayton Act’s rich

bounty of treble damages and attorney’s fees should reward only
Here, plaintiffs have alleged that defendants violated the Sherman Act through a horizontal price-fixing conspiracy. The element of defendants’ alleged price fixing which makes it unlawful, as with any conduct in violation of the antitrust laws, is its effect of restraining competition. See Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 345 (1982) (“The aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition. The power to fix prices, whether reasonably exercised or not, involves power to control the market and to fix arbitrary and unreasonable prices. . . . Agreements which create such potential power may well be held to be in themselves unreasonable or unlawful restraints, without the necessity of minute inquiry whether a particular price is reasonable or unreasonable as fixed . . . .” (quoting United States v. Trenton Potteries Co., 273 U.S. 392, 397–98 (1927))).
7

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those plaintiffs who further the purposes of the Sherman and Clayton Ltd. v. Acts, namely, & “protecting competition.” Corp., 509 Brooke U.S. Grp. 209,

Brown

Williamson

Tobacco

251 (1993). b. A Per Se Violation of the Sherman Act Does Not Necessarily Establish Antitrust Injury Critically, even when a plaintiff can successfully allege a per se violation of section 1 of the Sherman Act, such as

horizontal price fixing, the plaintiff will not have standing under section 4 of the Clayton Act unless he can separately demonstrate antitrust injury. See ARCO, 495 U.S. at 344

(“[P]roof of a per se violation and of antitrust injury are distinct matters that must be shown independently.” (quoting

(“Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation.” (quoting Associated Gen. Contractors, Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 534 (1983)) (internal quotation marks omitted)). In other words,

even though a defendant might have violated the Sherman Act and thus be subject to criminal liability, it is a separate question

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whether Congress intended to subject the defendant as well to civil liability, in particular to the plaintiffs suing. c. California’s Cartwright Act also Requires Antitrust Injury The antitrust injury requirement also applies to claims

Cartwright Act claims as well. . . . [T]he antitrust injury requirement means that an antitrust plaintiff must show that it was injured by the anticompetitive aspects or effects of the defendant's conduct, as opposed to being injured by the

conduct's neutral or even procompetitive aspects.”); Morrison v. Viacom, Inc., 66 Cal. App. 4th 534, 548 (App. 1st Dist. 1998) (“The plaintiff in a Cartwright Act proceeding must show that an antitrust violation was the proximate cause of his

injuries. . . . An ‘antitrust injury’ must be proved; that is, the type of injury the antitrust laws were intended to prevent, and which flows from the invidious conduct which renders

restraint or monopolization of trade.”). 2. Defendants’ Alleged Conduct Was Not Anticompetitive a. The LIBOR-Setting Process Was Never Competitive Here, plaintiffs do not argue that the collaborative LIBORsetting process itself violates the antitrust laws, but rather that defendants violated the antitrust laws by conspiring to set LIBOR at an artificial level. According to plaintiffs: Defendants’ anticompetitive conduct had severe adverse consequences on competition in that [plaintiffs] who traded in LIBOR-Based [financial instruments] during the Class Period were trading at artificially determined prices that were made artificial as a result of Defendants’ unlawful conduct. As a consequence thereof, [plaintiffs] suffered financial losses and were, therefore, injured in their business or property. See, e.g., OTC Compl. ¶¶ 217-26.

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Id. ¶ 219; see also Tr. 17-18.8 Although these allegations might suggest that defendants fixed prices and thereby harmed plaintiffs, they do not suggest that the harm plaintiffs suffered resulted from any

anticompetitive aspect of defendants’ conduct.

As plaintiffs

rightly acknowledged at oral argument, the process of setting LIBOR was it never was intended a to be competitive. endeavor Tr. 12, 18.

Rather,

cooperative

wherein

otherwise-

competing banks agreed to submit estimates of their borrowing costs to the BBA each day to facilitate the BBA’s calculation of an interest rate index. Thus, that even if we were to credit this

plaintiffs’

allegations

defendants

subverted

cooperative process by conspiring to submit artificial estimates instead of estimates made in good faith, it would not follow that plaintiffs have suffered antitrust injury. Plaintiffs’

injury would have resulted from defendants’ misrepresentation, not from harm to competition. b. Plaintiffs Do Not Allege a Restraint on Competition in the Market for LIBOR-Based Financial Instruments It is of no avail to plaintiffs Tr. 29-30. if that defendants were

competitors outside the BBA. have been antitrust injury

Although there might had restrained

defendants

8

References preceded by “Tr.” refer to the transcript of the oral argument held on March 5, 2013.

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competition in the market for LIBOR-based financial instruments or the underlying market for interbank loans, plaintiffs have not alleged any such restraint on competition. First, with regard to the market for LIBOR-based financial instruments, plaintiffs have not alleged that defendants’

alleged fixing of LIBOR caused any harm to competition between sellers of those instruments or between buyers of those

instruments. based

Plaintiffs’ allegation that the prices of LIBORinstruments “were affected by Defendants’

financial

unlawful behavior,” such that “Plaintiffs paid more or received less than they would have in a market free from Defendants’ collusion,” Antitrust Opp’n 36, might support an allegation of price fixing but does not indicate that plaintiffs’ injury

resulted from an anticompetitive aspect of defendants’ conduct.9

Contra to plaintiffs’ argument, the Ninth Circuit’s decision in Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000), is not to the contrary. Knevelbaard Dairies involved a claim by plaintiff milk producers that defendant cheese makers had conspired to fix a low price for bulk cheese, thereby depressing the price defendants paid plaintiffs for milk because California regulators used the bulk cheese price to set the minimum milk price. Plaintiffs had argued that defendants “did not compete,” but rather “collusively manipulate[ed] [bulk cheese] prices to levels lower than would prevail under conditions of free and open competition.” Id. at 984. The Ninth Circuit held that plaintiffs had adequately alleged antitrust injury. As quoted by plaintiffs, the Court reasoned: Since the plaintiffs allegedly were subjected to artificially depressed milk prices, the injury flows “from that which makes the conduct unlawful,” i.e., from the collusive price manipulation itself. . . . When horizontal price fixing causes buyers to pay more, or sellers to receive less, than the prices that would prevail in a market free of the unlawful trade restraint, antitrust injury occurs. Antitrust Opp’n 37 (quoting Knevelbaard Dairies, 232 F.3d at 987-88). However, in the context of the claims before it, the Ninth Circuit clearly

9

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In other words, it is not sufficient that plaintiffs paid higher prices because of defendants’ collusion; that collusion must

have been anticompetitive, involving a failure of defendants to compete where they otherwise would have. as distinguished from most antitrust Yet here, undoubtedly scenarios, the alleged

collusion occurred in an arena in which defendants never did and never were intended to compete. c. Plaintiffs Do Not Allege a Restraint on Competition in the Interbank Loan Market Second, there was similarly no harm to competition in the interbank loan market. intended to convey As discussed above, LIBOR is an index information about the interest rates

prevailing in the London interbank loan market, but it does not necessarily actual correspond loan. to the interest rate charged not for any that

interbank

Plaintiffs

have

alleged

defendants fixed prices or otherwise restrained competition in the interbank loan market, and likewise have not alleged that any such restraint on competition caused them injury.

intended to refer to collusive price manipulation in place of competition, and its reference to paying more or receiving less than the prices that would prevail in a market free of the unlawful trade restraint clearly contrasted prices in a market with such a restraint to a market operating under free competition. Moreover, the Ninth Circuit explicitly recognized that “the central purpose of the antitrust laws, state and federal, is to preserve competition, ” Knevelbaard Dairies, 232 F.3d at 988, and it quoted a leading antitrust treatise for the proposition that the harm to sellers from a pricefixing conspiracy by buyers “constitutes antitrust injury, for it reflects the rationale for condemning buying cartels - namely, suppression of competition among buyers, reduced upstream and downstream output, and distortion of prices,” id. (quoting 2 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 375b at 297 (rev. ed. 1995)) (emphasis added).

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Plaintiff’s theory is that defendants competed normally in the interbank loan market and then agreed to lie about the interest rates they were paying in that market when they were called upon to truthfully report their expected borrowing costs to the BBA. This theory is one of misrepresentation, and possibly of fraud, but not of failure to compete. 3. Plaintiffs Could Have Suffered the Harm Alleged Here Under Normal Circumstances The above analysis is confirmed by inquiring, as courts previously plaintiff have could in have evaluating suffered antitrust the same injury, harm under whether normal

circumstances of free competition.

For example, in Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), defendant was a manufacturer of bowling equipment that had purchased

pursuant to the Clayton Act, arguing that they had lost future income because the distressed bowling centers purchased by

defendant would otherwise have gone bankrupt.

The Supreme Court

held that these allegations did not establish antitrust injury. Although defendants’ actions might have violated the Sherman Act by bringing “a ‘deep pocket’ parent into a market of ‘pygmies,’” plaintiffs did not suffer antitrust injury because their alleged harm bore “no relationship to the size of either the acquiring

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company or its competitors.”

Id. at

487.

Plaintiffs “would

have suffered the identical ‘loss’ but no compensable injury had the acquired centers instead obtained refinancing Id. or been

purchased by ‘shallow pocket’ parents.”

Therefore, even if

respondents were injured, “it was not ‘by reason of anything forbidden in the antitrust laws’: while respondents' loss

occurred ‘by reason of’ the unlawful acquisitions, it did not occur ‘by reason of’ that which made the acquisitions unlawful.” Id. at 488. In ARCO, the Court reaffirmed this approach in the context of price fixing. Defendant in that case was an integrated oil

company that marketed gasoline both directly through its own stations and indirectly through dealers operating under its

brand name. dealers,

Facing competition from independent “discount” gas as those operated by plaintiff, defendant

such

allegedly conspired with its dealers to implement a vertical, maximum-price-fixing scheme. ARCO, 495 U.S. at 331-2. Many

independent gas dealers could not compete with the below-market prices established by this scheme, and consequently went out of business. Despite the harm that defendant’s conspiratorial conduct had caused plaintiff, the Supreme Court held that plaintiff had not suffered antitrust could injury. The Court reasoned injury that a by

competitor

establish

antitrust

only

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demonstrating predatory pricing, that is, pricing below cost in order to drive competitors out of business: When a firm, or even a group of firms adhering to a vertical agreement, lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an “anticompetitive” consequence of the claimed violation. A firm complaining about the harm it suffers from nonpredatory price competition “is really claiming that it [is] unable to raise prices.” Blair & Harrison, Rethinking Antitrust Injury, 42 Vand. L. Rev. 1539, 1554 (1989). This is not antitrust injury; indeed, “cutting prices in order to increase business often is the very essence of competition.” [Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)]. Id. at 337-38 (footnote omitted). In other words, cutting

prices to a level still above cost is not merely consistent with competition – something that could be expected to occur under normal circumstances – but indeed is often “the very essence of competition” – something to be desired. Because the harm

plaintiffs suffered resulted from competitive, healthy conduct, it did not constitute antitrust injury. As with the harm alleged in Brunswick and ARCO, the harm alleged conduct. here could have resulted injury from normal competitive from

Specifically,

the

plaintiffs

suffered

defendants’ alleged conspiracy to suppress LIBOR is the same as the injury they would have suffered had each defendant decided independently to misrepresent its borrowing costs to the BBA. Even if such independent misreporting would have been

fraudulent, it would not have been anticompetitive, and indeed

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would

have

been

consistent

with

normal

commercial

incentives

facing defendants. the face of

Those incentives, of course, are alleged on complaints: defendants allegedly had

plaintiffs’

incentive (1) “to portray themselves as economically healthier than they actually were” and (2) “to pay lower interest rates on LIBOR-based investors.” In this financial instruments that Defendants sold to

OTC Compl. ¶ 5. respect, the present case contrasts with more

traditional antitrust conspiracies, such as a conspiracy among sellers sellers’ to raise prices. Whereas prices in such exist a scenario, where the the

supracompetitive

could

only

sellers conspired not to compete, here, each defendant, acting independently, quotes to the for could BBA. each rationally The have why submitted it would to false have submit LIBOR been an

reason

sustainable

defendant

individually

artificial LIBOR quote is that, as discussed above, the LIBOR submission process is not competitive. A misreporting bank,

therefore, would not have been concerned about being forced out of business by competition from other banks. precisely because the process of setting In other words, LIBOR is not

competitive, collusion among defendants would not have allowed them to do anything that they could not have done otherwise. This plaintiffs’ analysis would not change if we were to accept absent

argument

that

defendants

could

not,

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collusion,

have

submitted

the

“clustered”

rates

that

they

submitted during the Class Period.

The question is not whether

defendants could have submitted independently the exact quotes that they in fact submitted, but rather whether they could have caused plaintiffs the same injury had they acted independently. As discussed above, the answer is yes: each defendant could have submitted, independently, a LIBOR quote that was artificially low. Further, whether the quotes would have formed a “cluster”

or not is irrelevant: plaintiffs’ injury resulted not from the clustering of LIBOR quotes, but rather from the quotes’ alleged suppression.10 In short, just as the bowling center operators in

Brunswick could have suffered the same injury had the failing bowling centers remained open for legitimate reasons, and just as the gas dealers in ARCO could have suffered the same injury had defendant’s prices been set through normal competition, the plaintiffs here could have suffered the same injury had each bank decided independently to submit an artificially low LIBOR quote. Moreover, Brunswick and ARCO, which each held that

plaintiffs did not suffer antitrust injury, involved more harm to competition than was present here.
10

In Brunswick, defendant’s

Indeed, given that a bank’s LIBOR quote represents the bank’s expectation of its own costs of borrowing, and that different banks based in different countries could sensibly face significantly different borrowing costs, it would not be surprising for banks to submit LIBOR quotes that differed persistently over the course of several years.

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conduct

brought

“a

‘deep

pocket’

parent

into

a

market

of

‘pygmies,’” altering the positions of competitors in the bowling center market in a manner that was potentially harmful to

competition. conspiracy

In ARCO, similarly, the prices set by defendants’ prices set through free competition and

displaced

thereby gave defendants’ dealers a competitive advantage over other dealers in the retail gas market. Here, by contrast, For one, LIBOR under normal

there is no allegation of harm to competition. was never set through competition, even

circumstances.

While it is true that the prices of LIBOR-based

financial instruments are set through competition, and that a change in LIBOR may have altered the baseline from which market actors competed to set the price of LIBOR-based instruments, competition proceeded unabated and plaintiffs have alleged no sense in which it was displaced. Additionally, there is no allegation that defendants’ At

conduct changed their position vis-à-vis their competitors.

any given time, there is only one LIBOR, used by all actors throughout the relevant market. manipulation of the level of Although defendants’ alleged LIBOR might have had the

distributive effect of transferring wealth between the buyers and sellers of LIBOR-based and their financial instruments, plaintiffs including have not

between

defendants

customers,

alleged any structural effect wherein defendants improved their

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position relative to their competitors.

Because Brunswick and

ARCO each involved more harm to competition than was present here, yet the Supreme Court held in each case that plaintiff had not suffered antitrust injury, it is even clearer here that antitrust injury does not exist. 4. Plaintiffs’ “Proxy” Argument Is Unavailing At oral argument, plaintiffs contended that LIBOR is a

proxy for competition in the underlying market for interbank loans, and thus defendants effectively harmed competition by

manipulating LIBOR.

According to plaintiffs, when defendants

reported artificial LIBOR quotes to the BBA, they “snuff[ed] out . . . the proxy for competition” by “interdicting the

competitive forces that set [defendants’] rates” and otherwise would have affected LIBOR and the price of LIBOR-based

instruments.

Tr. 24, 27.

This argument was advanced in the

context of Eurodollar futures contracts, which are based on the underlying market for interbank loans, but it also applies to other LIBOR-based financial instruments. If LIBOR

“interdict[ed]” competition that would otherwise have affected the market for Eurodollar futures contracts, it equally

interdicted competition that would have affected the market for LIBOR-based financial instruments more broadly. Although there is a sense in which this argument accurately characterizes the facts, the argument does not demonstrate that

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plaintiffs suffered antitrust injury. a proxy for the interbank LIBOR was lending thought

It is true that LIBOR is market; to indeed, it is

precisely

because

accurately

represent

prevailing interest rates in that market that it was so widely utilized as a benchmark in financial instruments. It is also

true that if LIBOR was set at an artificial level, it no longer reflected competition in the market for interbank loans and its value as a proxy for that competition was diminished, even

“snuffed out.”

However, the fact remains that competition in

the interbank lending market and in the market for LIBOR-based financial instruments proceeded unimpaired. If LIBOR no longer

painted an accurate picture of the interbank lending market, the injury plaintiffs suffered derived from misrepresentation, not from harm to competition. Contrary to plaintiffs’ contention, Tr. 28, their “proxy” argument does not derive support from the line of cases finding an antitrust violation where a defendant manipulated one

component of a price, both because those cases do not involve a proxy for competition and because they are distinguishable.

Plaintiffs cite Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980), in which the the Supreme Sherman Court Act by held that beer to

wholesalers

violated

conspiring

discontinue a previously common practice of extending short-term interest-free credit to retailers. However, not only did

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Catalano not involve a proxy for competition, but it also is plainly Catalano distinguishable: had previously whereas competed the over beer the wholesalers terms in they

credit

offered to retailers, such that the conspiracy to fix credit terms displaced an arena of competition, here there was never competition over LIBOR – a rate that, at any given time, is necessarily uniform throughout the market – and thus defendants’ alleged conspiracy to fix LIBOR did not displace competition. Plaintiffs also cite In re Yarn Processing Patent Validity Litigation, 541 F.2d 1127 (5th Cir. 1976), in which the Fifth Circuit considered machines a scheme which whereby a manufacturer the patent of in yarn those

processing

also

owned

machines conspired with other manufacturers to split the royalty income the patent holder received equally among all of the

manufacturers.

The Court held that the scheme violated the

antitrust laws because it fixed a portion of the prices that manufacturers received for the machines – prices over which the manufacturers competed. financial instruments Id. that Here, by contrast, the LIBOR-based defendants competed to sell had

sellers had conspired to fix the cooling and palletizing charge added to the price of cantaloupe. conspiracy violated the antitrust The Court held that the laws, even if cantaloupe

sellers continued to compete on the underlying price, because fixing even a component of price is unlawful. Id. at 872. Our

case is plainly distinguishable because the price of LIBOR-based financial instruments had always contained a “fixed” component – LIBOR – and thus defendants’ alleged conspiracy, as discussed above, did not displace competition. 5. Plaintiffs’ Remaining Cases Are Distinguishable The arguably involve other similar harm to cases facts plaintiffs are also put forward as addressing they To

though, the Court clarified that defendants’ collaboration in the industry association to publish the new cost escalation

index was not necessarily anticompetitive by itself, but rather was anticompetitive when combined with defendants’ other 587 F.

actions, notably imposing the uniform fuel surcharge.

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Supp. 2d at 35.

In our case, although defendants allegedly

fixed a benchmark, LIBOR, published by a trade association, the BBA, they did not add a uniform charge, like the fuel surcharge in Rail Freight, to an otherwise competitively determined price. The other decisions cited by plaintiffs that found antitrust injury where defendants because manipulated they each an index a are failure also of

government-mandated minimum price for milk, which was calculated using a formula that incorporated the price of bulk cheese); Ice Cream Liquidation, Inc. v. Land O’Lakes, Inc., 253 F. Supp. 2d 262 (D. Conn. 2003) (same, except defendants failed to compete in the butter market, which also affected a minimum milk price). 6. Conclusion For these reasons, plaintiffs’ allegations do not make out a plausible argument that they suffered an antitrust injury. Plaintiffs, pursuant to therefore, the do not have or standing the to bring claims Act.11

B. Exchange-Based Claims The Exchange-Based Plaintiffs have asserted causes of

action for manipulation of Eurodollar futures in violation of the Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 1-25 (2006), and vicarious liability for and aiding and abetting such

manipulation.

Exchange Am. Compl. ¶¶ 228-44.

Defendants have

moved to dismiss these claims on three grounds: (1) the claims involve an impermissible extraterritorial application of the

CEA, (2) the claims are time-barred, and (3) plaintiffs fail to state a claim for manipulation under the CEA. For the reasons

stated below, we find that, although plaintiffs’ claims do not require an extraterritorial application of the CEA and do not fail to plead commodities manipulation, they are time-barred at least to the extent that they rely on contracts purchased from August 2007, the start of the Class Period, through May 29, 2008, the date by which plaintiffs were clearly on inquiry

notice of their injury. 1. Extraterritoriality Defendants first argue that plaintiffs’ claims must be

principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the

territorial jurisdiction of the United States.”

Morrison, 130

S. Ct. at 2877 (quoting EEOC v. Arabian Am. Oil Co. (“Aramco”), 499 U.S. 244, 248 (1991)) (internal quotation marks omitted). The Court observed authority that to this principle but is not a limit on a

Congress’s

legislate,

rather

“represents

canon of construction . . . [that] rests on the perception that Congress ordinarily legislates with respect to domestic, not

foreign matters.” The Court

Id. established a two-part test for deciding

questions of extraterritoriality.

First, “‘unless there is the

affirmative intention of the Congress clearly expressed’ to give a statute extraterritorial effect, ‘we must presume it is

primarily concerned with domestic conditions.’” Aramco, 499 U.S. at 248). “When a statute

Id. (quoting gives no clear

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indication

of

an

extraterritorial

application,

it

has

none.”

Id. at 2878. court must

Second, if a statute applies only domestically, a determine which domestic conduct the statute

regulates.

The reason for this inquiry is that “it is a rare

case of prohibited extraterritorial application that lacks all contact with the territory of the United States,” and thus the presumption against extraterritoriality, to have any meaning, must limit the statute’s application to those domestic

activities that “are the objects of the statute’s solicitude,” that “the statute seeks to ‘regulate.’” out this analysis, a court must Id. at 2884. “the To carry of

ascertain

‘focus’

congressional concern.”

Id. (quoting Aramco, 499 U.S. at 255).

Applying this framework to section 9(a) of the CEA, the provision under which plaintiffs assert their claims, we first observe that “neither authorizes the CEA nor its legislative application history of the

and shows neither a Congressional intent to apply the CEA to foreign agents nor a wish to restrict the statute to domestic activities.” there is Id. (citing Tamari, 730 F.2d at 1107). less of an indication of Indeed,

even

extraterritorial

application here than in section 10(b) of the Securities and

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Exchange Act of 1934 (the “‘34 Act”), 15 U.S.C. §§ 78a-78pp (2006 & Supp. IV 2010), as amended by the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in scattered sections of the U.S. Code), which the Morrison Court held did not apply extraterritorially. that even though was one of to The Court reasoned in Morrison 10(b)’s foreign terms, “interstate see 15

section include

commerce,” U.S.C.

defined

commerce, to

§ 78c(a)(17),

“[t]he

general

reference

foreign

commerce in the definition of ‘interstate commerce’ does not defeat the presumption against extraterritoriality.” 130 S. Ct. at 2882. Morrison,

Here, “interstate commerce,” as referenced

in section 9(a) of the CEA, 7 U.S.C. § 13(a)(2), does not even include a reference to foreign commerce, id. § 1a(30). section 9(a) of the CEA “gives no clear indication Because of an

extraterritorial application, it has none.” Ct. at 2878.

Morrison, 130 S.

Having concluded that section 9(a) of the CEA applies only domestically, we must still determine which domestic activities “are the objects of the statute’s solicitude,” which activities “the statute seeks to ‘regulate.’” must determine “the ‘focus’ of Id. at 2884. congressional We therefore concern” in

enacting section 9(a) of the CEA. at 255).

Id. (quoting Aramco, 499 U.S.

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Section

9(a)

makes

it

a

crime

for

“[a]ny

person

to

manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity.” 7 U.S.C. § 13(a)(2). This

provision clearly focuses on commodities in interstate commerce and futures contracts traded on domestic exchanges. Such an

interpretation of the statute’s focus is consistent with the CEA’s statement of purpose, see 7 U.S.C. § 5(b), as well as decisions interpreting the CEA, see, e.g. Tamari v. Bache & Co., 730 F.2d 1103, 1108 (7th Cir. 1984) (“[T]he fundamental purpose of the [CEA] is to ensure the integrity of the domestic

commodity markets.”); cf. CFTC v. Garofalo, 10 CV 2417, at *12 (ruling that sections 6c(a) and (b) of the CEA, prohibiting certain transactions in commodities future or option contracts, “are concerned with where the underlying options contracts were actually traded”). domestic application Accordingly, a claim is within the CEA’s if it involves (1) commodities in

allegedly manipulated the price of Eurodollar futures contracts, which is directly based on LIBOR. Eurodollar futures contracts,

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of

course,

are

traded

on

the

Chicago

Mercantile

Exchange.

Indeed, defendants acknowledged at oral argument that Eurodollar futures contracts are within the scope of the CEA’s manipulation provision. manipulation Tr. of 42. the Because price of plaintiffs’ domestically claims traded involve futures

contracts, they are not impermissibly extraterritorial. According to defendants, plaintiffs “don’t allege that the defendants . . . manipulated the futures contract with Chicago,” but rather allege contract’s only that defendants commodity. manipulated Id. at the 43.

Eurodollar

underlying

Defendants contend that “[t]here are all kinds of things one can do to manipulate futures contracts,” but “[n]ot one of those things is alleged here.” We do not concur. price of Eurodollar Id. LIBOR was directly incorporated into the futures contracts, and by allegedly

manipulating LIBOR, defendants manipulated the price of those contracts. Moreover, as discussed further below, LIBOR cannot

plausibly be understood as the commodity underlying Eurodollar futures contracts; the only plausible way to characterize the components of a Eurodollar contract is that the underlying

commodity is a USD 1,000,000 deposit in a foreign commercial bank with a three-month maturity, and the price is settled or traded at a value based on LIBOR. limits This which understanding claims have of

Eurodollar

futures

contracts

been

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adequately pleaded, but it also forecloses defendants’ argument that the only thing plaintiffs have alleged is manipulation of Eurodollar contracts’ underlying commodity. In short,

plaintiffs’ claims clearly involve manipulation of the price of Eurodollar futures contracts, and manipulating the price of

futures contracts traded on domestic exchanges is precisely the conduct that the CEA was designed to regulate. Accordingly,

plaintiffs’ claims fall within the purview of the CEA. 2. Statute of Limitations Defendants next argue that plaintiffs’ claims are barred by the CEA’s statute of limitations. As discussed below, we find

that certain of plaintiffs’ claims are barred, certain are not, and others may or may not be, though we will not dismiss them at this stage. a. Legal Standard A claim pursuant to the CEA must be brought “not later than two years after the date the cause of action arises.” § 25(c). The CEA does start not the elaborate, running of however, its 7 U.S.C. on the of

circumstances limitations.

that

statute

Where a federal statute “is silent on the issue”

of when a cause of action accrues, as the CEA is, courts apply a “discovery accrual rule” wherein “discovery of the injury, not discovery of the other elements of a claim, is what starts the clock.” Koch v. Christie’s Int’l PLC, 699 F.3d 141, 148-49 (2d

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Cir. 2012) (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)) (internal quotation marks omitted) (interpreting the statute of limitations for RICO claims, which requires plaintiffs to bring suit no later than “[four] years after the cause of action

mean the date on which the investor discovers that he has been injured.”). Under Second Circuit precedent, courts apply an “inquiry notice” analysis to determine when a plaintiff has discovered his injury: Inquiry notice - often called “storm warnings” in the securities context - gives rise to a duty of inquiry “when the circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded.” In such circumstances, the imputation of knowledge will be timed in one of two ways: (i) “[i]f the investor makes no inquiry once the duty arises, knowledge will be imputed as of the date the duty arose”; and (ii) if some inquiry is made, “we will impute knowledge of what an investor in the exercise of reasonable diligence[] should have discovered concerning the fraud, and in such cases the limitations period begins to run from the date such inquiry should have revealed the fraud.” Koch, 699 F.3d at 151 (quoting Lentell v. Merrill Lynch & Co., 396 F.3d 161, 168 (2d Cir. 2005)); see also id. at 153 (“[O]nce

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there are sufficient ‘storm warnings’ to trigger the duty to inquire, and the duty arises, if a plaintiff does not inquire within the limitations period, the claim will be time-barred.”). In short, we first ask at what point the circumstances were such that they “would suggest to [a person] of ordinary intelligence the probability that she has been defrauded.” Id. at 151

(internal quotation marks omitted).

If plaintiffs do not then

inquire within two years, they are deemed to have knowledge of their injury at the point at which the duty to inquire arose, and the period of limitations starts to run on that date. Here,

plaintiffs do not allege that they made any inquiry into their injury prior to March 15, 2011. 99. See Exchange Am. Compl. ¶¶ 182-

Thus, if circumstances would have suggested to a person of

ordinary intelligence the probability that he had been defrauded more than two years prior to March 15, 2011, that is, prior to March 15, 2009, then, to the extent plaintiffs’ claims are based on Eurodollar contracts purchased through the date of inquiry notice, the claims are barred by the statute of limitations. Contrary to plaintiffs’ contention, the amount of public information necessary to start the period of limitations for commodities manipulation under the CEA is significantly less

than the amount necessary to commence the period of limitations for securities fraud under the ‘34 Act. The two-year

limitations period for securities fraud begins to run upon “the

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discovery of the facts constituting the violation.” § 1658(b)(1) (2006). 633 (2010), the

‘fact’ of scienter ‘constitut[es]’ an important and necessary element of a § 10(b) ‘violation.’ A plaintiff cannot recover

without proving that a defendant made a material misstatement with an intent to deceive — not merely innocently or

negligently.”

Id. at 1796 (emphasis omitted).

According to the

Second Circuit, this analysis indicates that the Court “thought about the requirements for ‘discovering’ a fact in terms of what was required to adequately plead that fact and survive a motion to dismiss.” City of Pontiac Gen. Emps.’ Ret. Sys. v. MBIA,

Inc., 637 F.3d 169, 175 (2d Cir. 2011). Plaintiffs argue that this pleading-based standard applies here, such that the statute of limitations did not begin to run until they could have adequately pleaded a claim for commodities manipulation. Exchange Opp’n 24-26. In support of this in

argument, plaintiffs rely on language in City of Pontiac

which the Circuit, considering “the basic purpose of a statute of limitations,” reasoned that because the purpose is to prevent

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plaintiffs from unfairly surprising defendants by bringing stale claims, and a because statute a of claim cannot be stale until it has a

“accrued,”

limitations

cannot

commence

until

claim has “accrued.” Exchange Opp’n 25. his

City of Pontiac, 637 F.3d at 175; see also Further, claim “[o]nly that after claim a be plaintiff said to can have

adequately accrued.”

plead

can

City of Pontiac, 637 F.3d at 175.

Plaintiffs argue

that this language applies to statutes of limitations generally, including in the CEA context. However, despite this general discussion of the purposes of statutes of limitations, the fact remains that City of Pontiac interpreted only the statute of limitations of the ‘34 Act, which is different on its face than the statute of limitations of the CEA. In Koch v. Christie’s Int’l PLC, 699 F.3d 141 (2d

Cir. 2012), the Circuit confirmed that the analysis in Merck, which was the basis for the pleading-based standard established in City of Pontiac, “does not apply outside the realm of the statute that it interpreted.” Id. at 150; see also Premium Plus

like RICO, is silent regarding when a cause of action arises. Therefore, the Second Circuit’s holding in Koch that the RICO statute of limitations is based on a “discovery of the injury” standard is controlling in the context of the CEA. Moreover, the pleading-based standard applicable to

securities fraud claims is instructive here to the extent that it sets an upper bound on the amount of information necessary to commence the period of limitation for plaintiffs’ commodities manipulation claims. As discussed below, a plaintiff seeking

damages for commodities manipulation must satisfy the following four elements: “(1) that [defendant] had the ability to

which knowledge may be imputed are clear from the pleadings and the public disclosures themselves.” In re Ultrafem Inc. Sec.

Litig., 91 F. Supp. 2d 678, 692 (S.D.N.Y. 2000). b. Publicly Available Information Relating to LIBOR Manipulation By national May 29, 2008, seven along articles with one published report in prominent in

news

sources,

referenced

several of those articles, suggested that LIBOR had been at artificial levels since August 2007, the start of the Class

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Period. inquiry

As discussed below, these articles put plaintiffs on notice of their claims based on Eurodollar futures

contracts purchased during that period.12 On April 10, 2008, Citigroup strategists Scott Peng,

Chintan Gandhi, and Alexander Tyo published a research report entitled, “Special Topic: Is LIBOR Broken?” (the “Peng Report”). Scott Peng et al., Citigroup, Special Topic: Is LIBOR Broken?, Apr. 10, 2008. The Report real Id. found that “[three-month] costs by LIBOR 20-30 the

are based on the bid-side rate of interbank borrowing, the Fed’s Eurodollar rate should be less than LIBOR (which, by definition, is an offered rate).” bid-side rate is now Id. 29 Yet, the Report observed, “the Fed’s [basis points] higher than LIBOR’s

offered-side rate,” and had generally been higher than LIBOR since August 2007. Id. This made “no economic sense.” Id.

The Report concluded that the Federal Reserve Eurodollar deposit

12

Plaintiffs argue in their opposition brief that the Barclays settlement documents suggest LIBOR manipulation extending as far back as 2005, and that they should, accordingly, be granted leave to amend their complaint to include allegations based on information derived from the Barclays settlements. Exchange Opp’n 29-30. As discussed below, we will grant plaintiffs leave to move to amend their complaints to include such allegations. One basis point is one-hundredth of a percentage point.

13

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rate, which seemed reasonable, “may be a better gauge than LIBOR of short-term funding levels.” Id.

The Report also compared one-month LIBOR to the rate at which the Federal Reserve auctioned off collateralized shortterm loans to banks under a program known as the Term Auction Facility (“TAF”). rate higher than TAF loans had recently been auctioned at a LIBOR, though “[g]iven that the TAF is a

securitized borrowing rate as opposed to LIBOR, which is an unsecuritized lending rate, it seem[ed] counterintuitive for

banks to pay a higher interest rate to borrow from the TAF than to borrow from the interbank market.” Id. Something was off,

and because the TAF rate appeared “entirely normal,” the Report concluded that “the real issue lies in a much bigger arena – LIBOR.” Id. The Report observed that a likely explanation for

the unusual LIBOR rates was that banks were seeking to bolster the market’s perception of their financial health: “[A]ny bank posting a high LIBOR level runs the risk of being perceived as needing funding. With markets in such a fragile state, this Id.

important barometers of the world’s financial health could be sending false signals. for borrowers In a development that has implications bankers and traders offered are rate,

everywhere, . . . that the

expressing

concerns

London

inter-bank Id.

known as Libor, is becoming unreliable.”

As evidence that

LIBOR was diverging from its “true” level, the article included a graph comparing three-month LIBOR to the three-month Federal Reserve Eurodollar deposit rate, with the heading “Broken

Indicator?” and the caption “Since the financial crisis began, the rate on three-month interbank loans has diverged at times from the comparable rate for dollars deposited outside the U.S.” Id. The article also discussed the Peng Report, noting that the had “compare[ed] Libor with [the TAF] indicator and

Report

others – such as the rate on three-month bank deposits known as the Eurodollar rate” to conclude that “Libor may be understated by 0.2 to 0.3 percentage points.” Id.

The article suggested that banks had several incentives to underreport LIBOR, notably the same incentives now alleged by plaintiffs: “Some banks don’t want to report the high rates

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they’re paying for short-term loans because they don’t want to tip off the market that they’re desperate for cash,” and “banks might have an incentive to provide false rates to profit from derivatives transactions.” Id. Finally, the article reported

that the BBA was investigating the LIBOR submission process in response to concerns from “bankers and other market

participants,” and that, “[i]n one sign of increasing concern about Libor, traders and banks are considering Id. using other

benchmarks to calculate interest rates.”

The next day, on April 17, 2008, the Wall Street Journal published accuracy. another article raising questions about LIBOR’s

Carrick Mollenkamp & Laurence Norman, British Bankers

Group Steps up Review of Widely Used Libor, Wall St. J., Apr. 17, 2008. The article about reported the that the of BBA, “[f]acing had

increasing

questions

reliability

[LIBOR],”

“fast-tracked an inquiry into the accuracy of the rate” and declared that “if banks are found to have submitted inaccurate figures, rates.” commonly they Id. would be removed from the panels that submit

According to the article, “the credit crisis,” to have begun in August 2007, see Peng

understood

Report, “ha[d] highlighted gaps between Libor and other interest rates, and it ha[d] raised questions about whether banks are submitting rates that accurately reflect actual borrowing

costs,” Mollenkamp & Norman, supra.

Bankers and traders “ha[d]

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expressed concerns that some banks don’t want to report the high rate they are paying for fear of creating the impression they are desperate for cash.” Id. Significantly, “[t]he problems

with Libor ha[d] also been a hot topic among traders in the market for Eurodollar futures.” Id.

On April 18, 2008, the Wall Street Journal published its third article in as many days regarding questions over LIBOR. Carrick Mollenkamp, Libor Surges After Scrutiny Does, Too, Wall St. J., Apr. 18, 2008. The article observed that after the BBA

announced on April 16, 2008, that it would fast-track its review of the LIBOR submission process, three-month USD LIBOR increased the next day by over eight basis points - “its largest jump since the advent of the credit crisis.” Id. The increase,

according to the article, might have been “a sign that banks could be responding to increasing concerns that the rate doesn’t reflect their actual borrowing costs.” Id. The article

repeated the observations of the previous two that the BBA’s move “came amid concerns among bankers that their rivals were not reporting the high rates they were paying for short-term loans for fear of appearing desperate for cash.” Id.

Additionally, the article noted the belief of some analysts that LIBOR had still not fully corrected: a strategist at Credit Suisse believed that three-month USD LIBOR was too low by 40 basis points, while the Peng Report had found LIBOR to be low by

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up to 30 basis points.

Id.

On April 21, 2008, the Financial Times published an article entitled, “Doubts over Libor Widen.” Gillian Tett & Michael

Mackenzie, Doubts over Libor Widen, Fin. Times, Apr. 21, 2008. The article reported that “the credibility of Libor as a measure [was] declining,” though this was “not entirely new: as the Financial Times first revealed [in 2007], bankers ha[d] been questioning the way Libor is compiled ever since the credit turmoil first erupted.” Id. Regarding why LIBOR “ha[d] started

to lag other, traded measures of market stress, such as the funding trends in the dollar deposit market,” the article

reported that although bankers thought it unlikely that there was collusion to suppress LIBOR, “there [was] a widespread

belief that some banks ha[d] an incentive to keep their bids low.” Id. Indeed, even though LIBOR is inherently a matter of

guesswork, especially when interbank lending is at a depressed level, the article quoted an economist’s observation that “‘[i]t is not surprising that [the LIBOR panel banks] make guesses that avoid unwelcome publicity.’” Id.

The next month brought three additional articles on the questions surrounding LIBOR. On May 16, 2008, Reuters published

an article providing background on the issue and summarizing various suggestions regarding how best to move forward.

European, U.S. Bankers Work on Libor Problems, Reuters, May 16,

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2008.

The article noted that “[t]hreats from the BBA in late

April to expel any bank found acting improperly was the trigger for a surge in the daily fix[es] over the next couple of days.” Id. Further, the article reported “worries that some banks were

understating how much they had to pay to borrow money in order to avoid being labeled desperate for cash and, as a result, vulnerable to solvency rumors.” Id.

On May 29, 2008, Bloomberg published an article that quoted a Barclays strategist’s statement that “[b]anks routinely

article also reported that LIBOR “show[ed] little correlation to banks’ cost of insuring debt from default,” despite the fact that, because lending rates and the cost of default insurance are both theoretically based on a bank’s likelihood Id. of

defaulting on its debts, they should be correlated.

As an

example, the article observed that, over the period from July 2, 2007, through April 15, 2008, UBS’s default insurance costs rose over 900 percent, while its USD LIBOR quotes “were lower than its rivals on 85 percent of the days during that period.” Id.

Finally, the article noted the unusual jump in three-month USD LIBOR after the BBA’s April 16, 2008, announcement, and that

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traders borrowing status.” 7.5

had

been as

“resorting the BBA

to

alternative to

measures

for

costs Id.

struggle[d]

maintain

Libor’s

Indeed, trading in Eurodollar futures declined by from March to April 2008, while trading in

percent

alternative future contracts experienced significant increases. Id. Also on May 29, 2008, the Wall Street Journal reported the findings of a study on LIBOR that the newspaper had conducted. Carrick Mollenkamp & Mark Whitehouse, Study Casts Doubt on Key Rate, Wall St. J., May 29, 2008. on data from January 23, The Journal’s analysis, based through April 16, 2008,

2008,

“indicate[d] that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG [were] among the banks that ha[d] been reporting significantly lower borrowing costs for [LIBOR] than what another Id. market measure suggest[ed] they should [have

points] lower than the borrowing rates suggested by the defaultinsurance market.” Id. The Journal’s methodology and findings

were reviewed by “three independent academics,” each of whom “said the approach was a reasonable way to analyze Libor.” Id.

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Indeed, one reviewer stated that “the [Journal’s] calculations show ‘very convincingly’ that reported Libor rates are lower than what the market thinks they should be.” Id.

The article also suggested that LIBOR was at an artificial level both before and after the study period. 2007 meeting of a Bank of England At a November committee, Id. In

money-market

concerns had emerged that “Libor wasn’t high enough.”

late April 2008, moreover, after banks had reacted to the BBA’s announcement, LIBOR remained 15 basis points too low. The analysis article doesn’t included prove the caveat are that lying “[t]he or Id. Journal’s

that

banks

manipulating

Libor,” given other possible explanations for the observed data, such as the guesswork inherent in calculating LIBOR and the fact that certain banks “have ample customer deposits and access to loans from the Federal Reserve.” Id. Nonetheless, the article

noted that “[i]f any bank submits a much higher rate than its peers, it risks looking like it’s in financial trouble[, s]o banks have an incentive to play it safe by reporting something similar.” Id. Indeed, a Stanford finance professor had

determined that the observed three-month USD LIBOR quotes were “‘far too similar to be believed,’” a conclusion buttressed by the fact that “[a]t times, banks reported similar borrowing

rates even when the default-insurance market was drawing big distinctions about their financial health.” Id. The article

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concluded by observing that some traders had “beg[un] thinking about using other benchmarks,” such as “the federal-funds rate – the rate at which banks loan to each other overnight.” These articles are summarized in Figure Id. 1, below.

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August 2007 Start of Class Period

March 15, 2009 Two Years Before Plaintiffs Claim They Were on Inquiry Notice

c. Inquiry Notice Plaintiffs argue that despite all of these articles, they were not on inquiry notice until March 15, 2011, “when UBS

released its annual report 20-F stating that it had received subpoenas from the Department of Justice, the SEC, the CFTC, as well as an information Agency, to the all BBA.” request from the to Japanese its ¶ Financial rate also

Supervisory submissions

relating OTC Am.

interest 205; see

Compl.

Exchange Am. Compl. ¶¶ 197-98; Exchange Opp’n 24-30.

Plaintiffs

offer three reasons for why the articles published in April and May 2008 failed to put them on inquiry notice: the articles “[1] did nothing more than speculate about possible LIBOR

discrepancies, [2] did not even suggest that such discrepancies resulted from Defendants’ intentional manipulation of their

LIBOR submissions, and [3] were accompanied by denials from the BBA that the panel banks[’] submissions represented anything

other than their true borrowing costs.” These arguments are unconvincing.

Exchange Opp’n 26. First, although it is

accurate that none of the articles definitively established that LIBOR was being manipulated, they did not need to do so to place plaintiffs on inquiry notice. Rather, they needed only to

suggest to a person of ordinary intelligence the probability that LIBOR had been manipulated. Accepting as true plaintiffs’

allegations that they were injured by paying too high a price

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for Eurodollar futures contracts and that the price at which Eurodollar contracts trade is affected by existing LIBOR fixes, Exchange Am. Compl. ¶¶ 209-17, it follows that if plaintiffs were on notice that LIBOR had been set at artificial levels, they were also on notice of their injury. As discussed above,

the Peng Report and the seven articles published in the ensuing weeks reported that (1) since August 2007, LIBOR had diverged from benchmarks with which it should have been this correlated, comparative

(2) independent

experts

had

confirmed

methodology and concluded that LIBOR was too low, (3) the BBA had accelerated its review of the LIBOR submissions process and publicly declared that a bank submitting false rates would be disqualified from the LIBOR panel, (4) LIBOR quotes jumped

abnormally on the day following the BBA’s announcement, and (5) market actors had begun to shift away from LIBOR-based

instruments toward instruments based on alternative benchmarks because of their distrust of recent LIBOR fixes. Faced with

this information, and especially in light of the fact that it was reported by five separate institutions, a person of ordinary intelligence would clearly have been on notice that LIBOR was probably being set at artificial levels and, consequently, that Eurodollar futures contract prices had also been artificial. Second, contrary to plaintiffs’ argument, plaintiffs need not have been aware that the artificiality in LIBOR fixes

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“resulted

from

Defendants’

intentional

manipulation

of

their

LIBOR submissions.”

Exchange Opp’n 26.

Unlike inquiry notice

under the ‘34 Act, which requires plaintiffs to be able to plead a claim for securities fraud, including scienter, inquiry notice under the CEA requires only that plaintiffs be on inquiry notice of their injury. that the In other words, plaintiffs need not have known LIBOR levels resulted from intentional

artificial

conduct by defendants; it is sufficient that plaintiffs knew that the LIBOR quotes defendants submitted did not reflect their actual expected borrowing rates, and thus that the prices of plaintiffs’ artificial. Eurodollar contracts, based on LIBOR, were

For the reasons stated above, plaintiffs clearly

had such knowledge. Finally, the fact that defendants and the BBA consistently denied that LIBOR fixes were artificial does not necessarily defeat inquiry notice. “[R]eassuring statements will prevent

the emergence of a duty to inquire or dissipate such a duty only if an investor of ordinary intelligence would reasonably rely on the statements to allay the investor’s concern.” LC Capital

intelligence would have understood that defendants each had a strong incentive to portray themselves as truthful and that the BBA had a strong incentive to maintain market confidence in LIBOR’s integrity. This is not to say that plaintiffs could

never have reasonably relied on assurances by defendants and the BBA, but rather that they should have been cautious about

accepting such assurances. reports provided evidence

As discussed above, repeated news that LIBOR was being fixed at

artificial levels.

Additionally, each defendant’s LIBOR quotes,

as well as comparable benchmarks, were available every business day, such that plaintiffs could feasibly defendants’ have and investigated the BBA’s

LIBOR’s

accuracy.

Therefore,

assurances that all was well with LIBOR could not have been reasonably relied on by plaintiffs and thus do not excuse

plaintiffs’ failure to inquire. The cases cited by plaintiffs are not on point. First,

investors sued an insurance company in which they had purchased stock, alleging that they had purchased at inflated prices

because they were unaware that the company’s strong financial performance was actually the result of paying unlawful kickbacks to insurance brokers. The Circuit held that the investors were

not placed on inquiry notice by newspaper articles which, like

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the articles held not to trigger inquiry notice in Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005), reported generally on “structural conflicts in [the insurance] industry” but did not contain information specific to the company at

issue.

Staehr, 547 F.3d at 429.

Indeed, one article’s failure

to provide specific information was “a particularly important omission, since the writer acknowledged that not all insurers paid [kickbacks] to get business.” Id. at 419. The Court

distinguished Shah v. Meeker, 435 F.3d 244 (2d Cir. 2006), which held that plaintiff was placed on inquiry notice by an article in Fortune magazine that included a “specific description of the business practices at the defendant company . . . which served as the basis of the plaintiff's complaint against that company.” Staehr, 547 F.3d at 430 (citing Shah, 435 F.3d at 251). Here, the notice afforded plaintiffs more resembles that in Shah than it does the notice in Staehr and Lentell. To start,

Staehr established a “sliding scale in assessing whether inquiry notice was triggered by information in the public domain: the more widespread and prominent the public information disclosing the facts underlying the fraud, the more accessible this

information is to plaintiffs, and the less company-specific the information must be.” Id. at 432. Here, the articles providing

evidence that LIBOR was artificial were reported in “widespread and prominent” sources, such as the Wall Street Journal and the

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Financial Times, and were presented in an accessible fashion, explaining their conclusions in clear English that a person of ordinary intelligence, without technical training, could

understand. diminished.

The required degree of specificity is therefore

In any event, the Peng Report and ensuing articles are sufficiently specific because they gave notice that plaintiffs had likely paid artificially high prices for their Eurodollar contracts. The specificity required to trigger inquiry notice

is not necessarily specificity with regard to defendant, but rather specificity that notifies a plaintiff that he has been injured. For instance, the newspaper articles in Staehr failed

to provide notice because they did not inform plaintiffs that the particular company plaintiffs had invested in had

perpetrated an unlawful kickback scheme, and the articles in Lentell failed to provide notice because they did not inform plaintiffs that the particular research reports that plaintiffs had relied on were fraudulent. Here, by contrast, even though

the Peng Report and ensuing articles mostly focused on LIBOR itself rather than the individual quotes of the panel banks,14

That said, the May 29, 2008, Wall Street Journal article presenting the Journal’s analysis of LIBOR did single out the submissions of individual panel banks. In its second paragraph, it reported: “The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for [LIBOR] than what another market measure suggests they should be.” Mollenkamp & Whitehouse, supra. Additionally, it included a

14

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plaintiffs were on notice that LIBOR had likely been suppressed and thus that the prices of Eurodollar contracts, including the contracts plaintiffs had purchased, were artificial. Therefore,

like in Shah and unlike in Staehr and Lentell, the published articles were sufficient to place plaintiffs on inquiry notice of their injury. Additionally, to whatever extent plaintiffs needed notice of who was responsible for their injury, such notice existed. It was a matter of public knowledge which banks were on the USD LIBOR panel, what rate those banks submitted to the BBA each day, and how the final LIBOR fix was determined. Plaintiffs,

that is, knew which banks affected the final LIBOR fixes and precisely how they affected those fixes.15 Especially given that

LIBOR is an average of the eight middle quotes, thus insulated to some extent from outlier quotes from individual banks, the fact that LIBOR persisted at a level that was likely artificial

Although, on any given day, only the middle eight quotes would be included in the computation to determine the LIBOR fix, all of the submitted quotes “affected” the ultimate fix. For example, if a bank’s “true” LIBOR quote would have been the tenth highest, within the middle eight, but the bank submitted instead an artificially low quote that was the fourteenth highest, outside the middle eight, the bank’s quote would not be included in the computation to determine the LIBOR fix. Nonetheless, the quote would have affected the fix by “bumping up” the quote that would have been in the thirteenth highest spot, excluded from the calculation, into the twelfth highest spot, included in the calculation. Thus, on any given day, every LIBOR quote had some “effect” on the ultimate LIBOR fix.

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should

have

raised

serious it

doubts would

about have

all been

panel

banks’ to have

submissions. investigate

Moreover, each bank’s

feasible could

submissions:

plaintiffs

compared the submissions to the bank’s cost of default insurance – a comparison that, to some extent, had already been performed and published in the May 29, 2008, Wall Street Journal article. See Mollenkamp & Whitehouse, supra. stronger issues than an when articles or merely The notice here is thus report general acts structural by other

in

industry

particular

unlawful

companies within defendant’s industry.

Because the Peng Report

and the articles published in April and May 2008 indicated that LIBOR was likely artificial, and LIBOR is affected by the

actions of each of the panel banks, plaintiffs had sufficient notice of who was responsible for their injury, to whatever extent this is necessary. For similar reasons, this case is unlike In re Copper

Antitrust Litigation, 436 F.3d 782 (7th Cir. 2006).

There, the

Seventh Circuit held, in the antitrust context, that although copper purchasers were on inquiry notice that they had been injured by one defendant, a trading company that allegedly fixed the price of copper, there was insufficient publicly available information attributable to as notify well the to purchasers that their a injury that was had

another

defendant,

bank

provided loans to the trading company.

In light of the Second

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Circuit decisions discussed above, holding that inquiry notice is triggered when the plaintiff discovers his injury, it is not clear that the Second Circuit would follow the Seventh Circuit in finding no inquiry notice with respect to a defendant when a plaintiff had discovered his injury but not that the particular defendant was responsible. required injury, plaintiffs the to In any event, even if inquiry notice who was responsible be satisfied, for for their the

of when the trader was on inquiry notice turned on when he “knew or should have known of [the cooperative]’s alleged intent to cause artificial cheddar cheese and [milk] futures prices.” Anderson cooperative’s is plainly distinguishable. might have been Whereas Id. the

cheese

purchases

legitimate,

depending on the purpose they were intended to further, the present defendants’ alleged submission of artificial LIBOR

quotes was necessarily illegitimate, regardless of defendants’ motives. of cheese In other words, although purchasing large quantities is not inherently improper, submitting artificial

LIBOR quotes is. was likely

Therefore, plaintiffs’ knowledge that LIBOR was sufficient to place plaintiffs on

artificial

inquiry notice of their injury. More broadly, our case is distinguishable from those in which the information necessary to place plaintiffs on inquiry notice of their injury is solely in the control of the

defendants.

Here, not only were LIBOR and each bank’s LIBOR

submission publicly available on a daily basis, but benchmarks of general interest rates and each bank’s financial health were also publicly available, and the Peng Report and the Wall Street Journal analysis compared the LIBOR fixes and quotes to these benchmarks to conclude that LIBOR was likely artificial. In

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other words, by May 29, 2008, plaintiffs’ investigative work had already been done for them and had been published in the pages of the Wall Street Journal. Relatedly, we cannot credit plaintiffs’ argument that they were not on inquiry notice because their complaint rests on analyses created only after tremendous effort by “world-class financial and statistical experts.” Exchange Opp’n 28. As

discussed above, by May 29, 2008, several sophisticated analyses comparing LIBOR to relevant benchmarks had already been

conducted, and their results were published in a plain-English format accessible to a person of “ordinary intelligence.”

Moreover, the conclusions of these analyses were supported by other reported evidence, such as the BBA announcement, the

subsequent jump in LIBOR, and the decision by market actors to switch from LIBOR-based instruments to instruments based on more reliable indices. Thus, although plaintiffs are correct that

the standard is not what would place an expert on notice but rather what would place a person of ordinary intelligence on notice, the fact is that a person of ordinary intelligence

reading the information available as of May 29, 2008, would have been on notice of his injury. Finally, plaintiffs argue that “the statute of limitations cannot bar CEA claims based on the conduct relating to the

trading scheme described in Barclays settlements made public on

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June 27, 2012 and not alleged in the Exchange Complaint.” 29.

Id.

The reason, according to plaintiffs, is that, “prior to

June 27, 2012, there was not a single public article or news report even of hinting LIBOR to at this day-to-day Barclays’ and opportunistic other banks’ Id.;

manipulation

benefit

traders, or that this misconduct began as early as 2005.”

see also CFTC Order 2 (“The wrongful conduct spanned from at least 2005 through at least 2009, and at times occurred on an almost daily basis.”). Plaintiffs request that they “be

permitted to amend the complaint to include these allegations.” Exchange Opp’n 30. As discussed below, we are inclined to believe that at least some potential claims based on day-to-day, trading-

motivated manipulation are not time-barred. grant plaintiffs leave to move on to amend

Therefore, we will their complaint from by to the a

include Barclays proposed pursue

allegations settlements, second a

based such

information to be

derived

motion

accompanied if the

amended motion,

complaint. they should

However, respond to

plaintiffs following

such

concerns. As we see it, the question of whether plaintiffs’ potential claims based on day-to-day manipulation are time-barred presents two issues: (1) whether the period of limitations has expired on potential claims based on contracts purchased prior to August

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2007,

the

start

of

the

Class

Period

alleged

in

plaintiffs’

amended complaint, and (2) whether the period of limitations has expired on potential claims based on contracts purchased after August 2007, given that the articles discussed above did not suggest the sort of manipulation alleged in the Barclays

settlement papers. With regard to the first issue, we are inclined to believe that plaintiffs’ potential claims based on contracts purchased prior to August 2007 are not time-barred. Although the articles

discussed above suggested that LIBOR was fixed at artificial levels starting in August 2007, they did not suggest

artificiality in LIBOR levels prior to that time.

Especially

given that August 2007 is commonly recognized as the start of the financial crisis, and that banks’ incentive to manipulate LIBOR, as reported in the articles, was related to that crisis, a person of ordinary intelligence could reasonably have thought that LIBOR manipulation started in August 2007, but no earlier. Therefore, it seems that the articles discussed above did not place plaintiffs on inquiry notice of their injury based on contracts purchased prior to August 2007; indeed, plaintiffs

might not have been on inquiry notice of their injury until the Barclays settlements were made public on June 27, 2012, after plaintiffs’ amended complaint was filed. Consequently,

plaintiffs’ potential claims based on this conduct are probably

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not

time-barred.

Although

we

expect

that

claims

based

on

contracts purchased prior to August 2007 will face even greater challenges with regard to loss causation than plaintiffs’ other claims face, plaintiffs should have an opportunity to supplement their complaint with these allegations and to squarely address the issues those allegations raise. By inclined contrast, to think with that regard the to the second issue, above we are

articles

discussed

placed

plaintiffs on inquiry notice of their injury based on any sort of LIBOR manipulation, including both the persistent suppression alleged in plaintiffs’ for trading amended complaint and the by day-to-day Barclays

manipulation settlements. their claims

advantage

suggested

the

As discussed below, plaintiffs can recover for only to the extent that they 7 suffered “actual

damages”

from

defendants’

conduct.

U.S.C.

§ 25(a)(1).

Plaintiffs could have suffered actual damages only if the price of their Eurodollar contracts decreased over the period during which they owned the contracts; otherwise, plaintiffs would have either broken even or profited. are liable for the decrease To the extent that defendants in the price of plaintiffs’

Eurodollar contracts, it must be because LIBOR increased over the time during which plaintiffs owned the contracts and the trading prices of Eurodollar contracts were correlated with the LIBOR fixes. In a basic sense, there are two scenarios in which

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LIBOR could have increased over the time period that plaintiffs owned their contracts: (1) it started too low and then increased towards its “true” level, or (2) it started at its “true” level and then increased LIBOR to an artificially theory of high level. The amended

“persistent

suppression”

plaintiffs’

complaint is based on the first scenario, and the “day-to-day, up or down, manipulation for trading advantage” theory of the Barclays settlements adds the second scenario, at least for

those days on which LIBOR was allegedly manipulated upward. Critically, although these two scenarios differ in how

plaintiffs’ injury would be caused, the injury would be the same. Specifically, plaintiffs’ injury would be that they lost

money because the prices of their Eurodollar contracts decreased over the time that they owned them due to defendants’

manipulation of those prices.

Further, because plaintiffs were

not in a position to know the “true” level of LIBOR, they could not have distinguished between injury caused, on the one hand, by LIBOR starting too low and approaching the “normal” level and, on the other, LIBOR starting at a “normal” level and being manipulated plaintiffs’ defendants’ upward. Eurodollar alleged Therefore, contracts notice likely of LIBOR that the prices due of to been

decreased would

manipulation

have

sufficient for inquiry notice, regardless of whether defendants allegedly caused the injury by setting LIBOR too high or too

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low.

Moreover, as discussed above, plaintiffs were on inquiry

notice of their injury by May 29, 2008, as the Peng Report and ensuing articles informed plaintiffs that they likely had been injured by defendants’ submission of artificial LIBOR quotes

starting in August 2007. For these reasons, we are skeptical that potential claims based on day-to-day manipulation are timely to the extent they involve 2008. contracts purchased between August 2007 and May 29,

In any event, we grant plaintiffs the opportunity to move

to amend their complaint to include allegations of day-to-day manipulation, with the expectation that any such motion will address the concerns presented here. d. Fraudulent Concealment Plaintiffs limitations additionally be argue due that to the CEA’s statute of

should

tolled

defendants’

fraudulent

concealment of their unlawful conduct.

Exchange Opp’n 30-32.

The statute of limitations may be tolled “if a plaintiff can show fraudulent concealment of the violation by a defendant.” In re Natural Gas Commodity Litig. (“Natural Gas”), 337 F. Supp. 2d 498, 512 (S.D.N.Y. 2004). To demonstrate fraudulent

concealment, a plaintiff must plead, with particularity: “(1) that the defendant concealed the existence of the CEA violation; (2) that the plaintiff remained unaware of the violation during the limitations period; and (3) that the plaintiff’s continuing

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ignorance as to the claim was not a result of a lack of due diligence.” 9(b). The Id. at 513; see also id. at 513-14; Fed. R. Civ. P. first “by element, showing the fact [1] of that concealment, the may be

demonstrated

either

defendant

took

affirmative steps to prevent the plaintiff’s discovery of his claim or injury or [2] that the wrong itself was of such a nature as to be self-concealing.” Natural Gas, 337 F. Supp. 2d

[defendants’] violation during the limitations period,” as they were on notice no later than May 29, 2008, that they had likely been injured. Moreover, because of this, they could not have

reasonably relied on defendants’ and the BBA’s reassurances that LIBOR was accurate. For the same reason, defendants’ alleged manipulation was not self-concealing. Although plaintiffs cite Natural Gas for

the proposition that “report[ing] false trade data to entities that collect that information for public dissemination” is

“inherently self-concealing,” id. at 513, the false reporting in Natural Gas was distinguishable from the allegedly false

reporting here. be concealed

In Natural Gas, the reporting was “designed to the general public,” and there was “no

from

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explanation for how [defendants’] actions, if true, could or should have been discovered by the general public.” by contrast, Thomson Reuters published daily both Id. the Here, final

LIBOR fix and the quotes from each of the panel banks. of ordinary intelligence could have reviewed the

A person submitted

quotes along with numerous articles analyzing these quotes and explaining why they were likely artificial. Under these

circumstances, plaintiffs have not adequately alleged fraudulent concealment. e. Which Claims Are Barred Having determined that plaintiffs were on inquiry notice of their injury no later than May 29, 2008, we must now determine which claims are barred by the statute of limitations. present our conclusions by reference to Figure 2, We will below.

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August 2007 Start of Class Period

May 29, 2008 INQUIRY NOTICE

March 15, 2009 Two Years Before Plaintiffs Claim They Were on Inquiry Notice

April 15, 2009 Two Years Before the Filing of Plaintiffs’ Complaint on April 15, 2011

May 2010 End of Class Period

Period 1

Period 2

Period 3

FIGURE 2: INQUIRY NOTICE TIMELINE

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As discussed below, we find that some of plaintiffs’ claims are barred and some are not, depending on when the contracts that are the basis for on those claims were purchased. purchased

Specifically,

claims

based

Eurodollar

contracts

during Period 1 are barred; claims based on contracts purchased during Period 3 are not barred; and claims based on contracts purchased during Period 2 may or may not be barred, though we will not dismiss them at this stage. We begin with Period 1, the time from the start of the Class Period, August 2007, to the date of inquiry notice, May 29, 2008. Plaintiffs have argued that the earliest they had

notice of their claims is March 15, 2011, and they do not allege that they inquired into their claims any earlier than that date. Assuming that their inquiry in fact commenced on March 15, 2011, it would have been too late, as it would have been more than two years after the date of inquiry notice. By May 29, 2008, any

plaintiff who had purchased a Eurodollar contract would have been on notice of his injury, as he would have known that he had likely paid an artificial price for the contract. Accordingly,

plaintiffs’ claims are barred to the extent that they are based on contracts purchased during Period 1, that is, from the

beginning of the Class Period through May 29, 2008. We next consider Period 3, the time between April 15, 2009, two years prior to the filing of plaintiffs’ complaint, and May

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2010, the end of the Class Period.

As a general matter, inquiry

notice is based on a plaintiff’s discovery of his injury, and a plaintiff cannot discover his injury until he has been injured. Here, even if plaintiffs who purchased Eurodollar contracts

during Period 3 were aware of the articles published in April and May 2008, they could not have been on inquiry notice of their claims any earlier than the date on which they purchased their contracts. Therefore, the claims of plaintiffs who

purchased Eurodollar contracts on or after April 15, 2009, are not barred because the complaint was filed within two years of the date of inquiry notice. Finally, Period 2 describes the time between May 30, 2008, the day after inquiry notice was triggered, and April 14, 2009, two years and one day before the filling of plaintiffs’

complaint. this

Plaintiffs who purchased Eurodollar contracts during like plaintiffs who purchased during Period 3,

period,

could have been on inquiry notice no earlier than the date on which they purchased their contracts. precisely when they were on notice. It is not clear, however, We cannot necessarily

charge these plaintiffs with knowledge of the articles published through May 29, 2008, as they had not purchased their contracts yet and may not have had reason to follow LIBOR-related news. However, other articles may have been published during Period 2 that would have put plaintiffs on notice. We are aware of one

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newspaper article published during this period that focused on LIBOR, albeit one-month USD LIBOR instead of the three-month rate on which Eurodollar contracts are based, Carrick

Mollenkamp, Libor’s Accuracy Becomes Issue Again, Wall St. J., Sept. 24, 2008, and there may be more. In order to decide

whether claims based on contracts purchased during this period are barred, we would need to determine (1) when inquiry notice was triggered, (2) whether plaintiffs actually inquired within two years of the date of inquiry notice, and, (3) if so, whether the complaint was filed within two years of the date on which a person of ordinary intelligence, “in the exercise of reasonable diligence,” would have discovered his injury. Koch, 699 F.3d at

151 (quoting Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 168 (2d Cir. 2005)). At present, we are not in a position to Therefore, we cannot conclude that the bars the claims of plaintiffs who

address these questions. statute of limitations

purchased Eurodollar contracts during Period 2, between May 30, 2008, and April 14, 2009. In sum, the CEA’s statute of limitations bars plaintiffs’ claims based on contracts entered into during Period 1, between August 2007 and May 29, 2008, and does not bar claims based on contracts entered into during Period 3, between April 15, 2009, and May 2010. Plaintiffs’ claims based on contracts entered

into during Period 2, between May 30, 2008, and April 14, 2009,

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may or may not be barred, though we will not dismiss them at this stage.16 Finally, plaintiffs may move to amend their

complaint to include allegations based on information derived from the Barclays settlements, provided that any such motion addresses the concerns raised herein and is accompanied by a proposed second amended complaint. 3. Pleading Commodities Manipulation Finally, defendants argue that plaintiffs have inadequately pleaded their primary claim for commodities manipulation and

their secondary claims for vicarious liability for and aiding and abetting commodities manipulation. For the reasons

discussed below, we disagree. a. Legal Standard Section 9(a) of the CEA makes it a crime for any person “to manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, or of any swap . . . .” U.S.C. § 13(a)(2). 7

In DiPlacido v. Commodity Futures Trading

Commission, 364 F. App’x 657 (2d Cir. 2009), the Second Circuit established a four-part test for pleading manipulation under the

16

On March 27, 2013, we received from plaintiffs two documents issued by the UK Financial Services Authority (the “FSA”): (1) the “FSA Internal Audit Report: A Review of the Extent of Awareness Within the FSA of Inappropriate LIBOR Submissions,” dated March 2013, and (2) the “Management Response” to that report, also dated March 2013. These documents do not alter our conclusions.

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CEA: plaintiff must show “(1) that [defendant] had the ability to influence market prices; (2) that [he] specifically intended to do so; (3) that artificial prices existed; and (4) that

manipulation with particularity depends on the facts alleged. As we observed in In re Crude Oil Commodity Litigation (“Crude Oil”), No. 06 Civ. 6677 (NRB), 2007 WL 1946553 (S.D.N.Y. June 28, 2007), Rule 9(b) “is cast in terms of the conduct alleged, and is not limited to allegations styled or denominated as fraud or expressed in terms of the constituent elements of a fraud cause of action.” Id. at *5 (quoting Rombach v. Chang, 355 F.3d

Case 1:11-md-02262-NRB Document 286

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164, 171 (2d Cir. 2004)) (internal quotation marks omitted).

In

that case, we held, in the context of a claim for commodities manipulation, that because “the crux of plaintiffs’ allegations is that defendants misled the market with regard to supply and demand at Cushing by concealing its capacity and its actions, resulting in artificial prices,” plaintiff’s allegations sounded in fraud and therefore were subject to Rule 9(b). Id.

Similarly, here the crux of plaintiffs’ claim is that they paid too much for their Eurodollar contracts because their

expectation of the contracts’ value was informed by existing LIBOR fixes, which were artificial as a result of defendants’ submission of artificial quotes to the BBA. In other words, the

claim is that defendants, by submitting artificial LIBOR quotes, misled the market with regard to future levels of LIBOR, and by extension future prices of Eurodollar contracts, and thus caused Eurodollar contracts to trade at artificial prices. Like the

allegations in Crude Oil, the present allegations sound in fraud and thus must be pled with particularity. However, courts generally relax Rule 9(b)’s requirements in the context of manipulation claims, as such claims often ATSI

facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial recklessness.” evidence Crude Oil, of 2007 conscious WL 1946553, misbehavior at *8 or

quotation marks omitted). In addition to alleging a violation of the CEA, plaintiffs must also show that they have standing to sue. Section 22(a) of

the CEA grants a private right of action to any person “who purchased or sold a [futures contract] or swap if the violation constitutes . . . (ii) a manipulation of the price of any such contract or swap or the price of the commodity underlying such contract or swap.” 7 U.S.C. § 25(a)(1)(D). The manipulation

There are two ways that plaintiffs’ manipulation framed: (1) manipulation of the price of

Eurodollar futures contracts, and (2) manipulation of the price of the commodity underlying Eurodollar futures contracts. As

discussed below, we find that plaintiffs state a claim for the first type of manipulation, but not for the second.

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i. Manipulation of the Price of Eurodollar Futures Contracts Plaintiffs have stated a claim for commodities manipulation based on manipulation of the price of Eurodollar futures

contracts.

With regard to the first element of the DiPlacido

test, there is no question that defendants had the ability to influence the price of Eurodollar futures contracts. At

settlement, the price of Eurodollar contracts is set according to a formula that directly incorporates LIBOR. Prior to

settlement, Eurodollar contracts trade “based on what LIBOR is expected to be in the future,” and “[t]o the extent that LIBOR is mispriced in the present, expectations of what LIBOR will be in the future will also be skewed.” Exchange Am. Compl. ¶ 209.

Each defendant, of course, had the ability to influence LIBOR through the quotes it submitted daily to the BBA. Because each

defendant had the ability to influence LIBOR and LIBOR affected the price of Eurodollar contracts, each defendant had the

ability to influence the price of Eurodollar contracts. With regard to the second element, plaintiffs’ plausibly allege that defendants specifically intended to manipulate the price of Eurodollar alleges futures contracts. that Plaintiffs’ defendants contract or amended stood to

complaint gain from

concrete

benefits

manipulating plaintiffs

Eurodollar allege

futures

prices. other

Specifically,

that

“subsidiaries

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affiliates of Defendants . . . trad[ed] LIBOR-based financial instruments such as Eurodollar futures contracts at manipulated prices not reflecting fundamental supply and demand, to the

direct benefit of Defendants.”

Id. ¶ 43; see also id. ¶ 218

(“Defendants, through their broker-dealer affiliates[,] actively traded Eurodollar futures and options on those futures during the Class Period.”). Moreover, the Barclays settlement documents suggest that Barclays had a concrete economic interest in manipulating the price of Eurodollar contracts and, indeed, may have manipulated LIBOR for the express purpose of profiting on Eurodollar

contracts.

See, e.g., CFTC Order 2 (“Barclays based its LIBOR

submissions for U.S. Dollar . . . on the requests of Barclays’ swaps traders, including former Barclays swaps traders, who were attempting to affect the official published LIBOR, in order to benefit Barclays’ derivatives trading positions; those positions included swaps and futures trading positions . . . .”) (emphasis added); DOJ Statement ¶ 10 (“Barclays employs derivatives

traders in New York, New York and in London, England who trade financial instruments tied to LIBOR and EURIBOR, including

benefits that defendants stood to gain from manipulating the price of Eurodollar futures contracts. As discussed above, scienter may be established by showing that defendants had both motive and opportunity. See Crude Oil,

There is no question that defendants submitted LIBOR quotes to the BBA each day and these quotes collectively determined where LIBOR was fixed. alleged that As discussed above, plaintiffs have adequately was fixed at artificial levels for

LIBOR

substantial parts of the Class Period and that the price of Eurodollar futures contracts is significantly influenced by

existing LIBOR fixes.

Therefore, although, as discussed below,

there are serious questions regarding whether defendants harmed plaintiffs, plaintiffs have adequately alleged that defendants caused the prices of Eurodollar futures contracts to be

artificial. Moreover, plaintiffs have satisfied Rule 9(b). alleged “what manipulative quotes to acts the were BBA performed” and They have submitting defendants

artificial

LIBOR

“which

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performed them” – each defendant.

They have also alleged “when

the manipulative acts were performed”: on all or a substantial number of the business days during the Class Period, from August 2007 to May 2010. “what effect the LIBOR Finally, plaintiffs have adequately alleged scheme is had on the market for into [Eurodollar Eurodollar

contracts]”:

directly

incorporated

futures contracts’ settlement price and, because of that, also strongly affects the trading price of Eurodollar contracts prior to settlement. quotes, In short, by allegedly submitting false LIBOR manipulated the price of Eurodollar

defendants

contracts. Although plaintiffs have not identified precisely how each LIBOR quote from each defendant on each day during the Class Period was or was not artificial, they could not reasonably be expected to do so at this stage of the litigation. matter of public knowledge to pay what to interest U.S. day rate It is not a each in bank the

subjectively London

expected

borrow each

dollars the

interbank

lending

market

during

Class

Period, nor is it publicly known what interest rates each bank paid in fact. Because plaintiffs could not have known the

“true” level of any LIBOR quote, they could not have pleaded, consistent with Rule 11, precisely which quotes were inaccurate and by how much. If anyone currently possesses this information

showing how LIBOR as well as individual defendants’ LIBOR quotes diverged during the Class Period from benchmarks that they

should have tracked.

These graphs, of course, are one way of

presenting a series of data points that correspond to individual LIBOR quotes and corresponding benchmarks on each day during the Class Period, just as a chart would. However presented, this

information describes, to the degree plaintiffs are able, which LIBOR quotes were likely artificial and by roughly how much. Moreover, even to the extent that plaintiffs have affirmatively alleged LIBOR manipulation not for each day, but only over a 34month-long allegations Natural period, are this does not necessarily mean that In the re

insufficiently F. Supp. 2d

specific. 336,

See,

e.g.,

Gas,

358

344-45

(S.D.N.Y.

2005)

(finding that plaintiffs had adequately pleaded a commodities manipulation claim where they had alleged that defendants

engaged in manipulative acts “from June 1999 to February 2001” and “between March 2001 and December 2002”). limited information publicly available, In light of the plaintiffs have

adequately alleged that defendants submitted artificial LIBOR

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quotes during the Class Period and thereby manipulated the price of Eurodollar futures contracts. Finally, plaintiffs have adequately demonstrated that they have standing to sue under the CEA. Plaintiffs have plainly

alleged that they purchased Eurodollars futures contracts during the Class Period. They have also alleged that defendants

manipulated the price of Eurodollar futures contracts. Defendants dispute whether plaintiffs have alleged “actual damages.” make to 7 U.S.C. § 25(a)(1). demonstrate as a net Where actual The showing plaintiffs must understood, the type results as an of as discussed

damages, on

above,

loss,

depends

manipulation isolated stock public

involved. manipulative purchases in

plaintiffs’ by

injury

from

conduct the

defendants,

such of

artificial initial

immediate

aftermath

offering in order to drive up price, “allegations of artificial inflation are sufficient to plead loss causation because it is fair to infer that the inflationary effect must inevitably

diminish over time.”

In re Initial Public Offering Sec. Litig. In such a

(“IPO”), 297 F. Supp. 2d 668, 674-75 (S.D.N.Y. 2003).

situation, “[i]t is that dissipation - and not the inflation itself - that caused plaintiffs’ loss.” By contrast, where plaintiffs’ of false Id. at 675. injury results “an from

defendants’

dissemination

information,

inflated

purchase price will not itself constitute or proximately cause

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the relevant economic loss.” U.S. 336, 342 (2005).

Dura Pharm., Inc. v. Broudo, 544

“Once a misstatement or omission infects

the pool of available information, it continues to affect the stock price until contradictory information becomes available.” IPO, 297 F. Supp. 2d at 674. A plaintiff who purchased at an

inflated price might have sold his instrument before the false information had been corrected, thus not suffering a loss at all, or might have sold it at a loss but where the loss was caused by something other than the defendant’s

misrepresentation. v. Pac. Inv. Mgmt. Dura

See Dura, 544 U.S. at 342-43; see also Kohen Co., to 571 F.3d that 672, “an at 679 (7th Cir. that 2009) the

(interpreting plaintiffs prices’ did had

hold

allegation ‘artificially

bought state

securities a claim

inflated had been

not

that

the

plaintiffs

injured by the inflation because, for all that appeared, the prices had remained at that level, or even a higher one, or the plaintiffs had sold before the price bubble burst”). if the manipulation stock alleged here we an is can is analogous that to In short, isolated

artificial suffered however,

purchases, based on

presume

plaintiffs If,

damages the

inflated more

purchase akin to

price.

manipulation

disseminating

inaccurate information, plaintiffs need to show that they sold or settled their Eurodollar contracts at a loss.

that, as plaintiffs allege, the degree of artificiality, or how many basis points LIBOR was “off” by, likely varied. See Tr. 70

(“The degree of artificiality got much worse, particularly after Lehman Brothers [filed for bankruptcy protection, on September 15, 2008], and then had fluctuations, and then . . . , after the subpoenas, disappeared. 22 (showing that the But it’s varied.”); Exchange Am. Compl. spread between LIBOR and the Federal

Reserve Eurodollar Deposit Rate varied over the Class Period). However, because LIBOR never returned to its “normal” level

within the Class Period, the mere fact that plaintiffs purchased

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their Eurodollar contracts at an inflated price does not show that they suffered a loss on those contracts. Rather, as in the “false information” scenario, plaintiffs may or may not have suffered a loss caused by defendants’

manipulation, depending on what the price was when they sold their contracts and what else might have been responsible for the loss. Although the manipulation alleged here is not

perfectly analogous to disseminating false information, given that LIBOR was fixed anew every day and that the degree of artificiality likely varied, the two types of manipulation are similar in the important respect that the price remained at artificial levels, such that it is not clear that a contract purchased at artificial prices would have been sold at a loss. In their amended complaint, plaintiffs have not identified each individual Eurodollar futures contract that they purchased, let alone these contracts’ purchase price, sale date, and sale price. contracts Rather, during they the allege Class that they at purchased prices Eurodollar that were

Period

artificially high as a result of defendants’ manipulation of LIBOR, Exchange Am. Compl. ¶¶ 214-220, that the degree of LIBOR artificiality likely varied over the Class Period, id. ¶ 22, and that they “were harmed as a consequence of Defendants’ unlawful conduct,” id. ¶ 20; see also id. ¶¶ 21-26. Defendants argue

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that

these

allegations

are

insufficient

to

allege

actual

damages. We recover

Exchange MTD 23. disagree. unless they Although prove plaintiffs that they will sold not or be able to

settled

their

contracts at a loss due to defendants’ manipulation, they cannot be expected to have alleged with such precision in their amended complaint. To know which contracts were sold or settled at a

loss because of defendants’ conduct, plaintiffs would need to compare the spread between LIBOR’s “true” level and its actual level at the time the contract was purchased and the time the contract was sold or settled. Plaintiffs would suffer loss only

if the spread changed in a manner that resulted in a lower sale price. In other words, to have pleaded loss causation in the

manner suggested by defendants, plaintiffs would have needed to know the “true” LIBOR level at the time they purchased and sold their contracts. Although this information might be in the

possession of defendants, it could not be known by plaintiffs.17 The benchmarks of referenced LIBOR was by at plaintiffs, an though generally do not

probative

when

artificial

level,

indicate precisely at which level LIBOR should have been fixed

17

Indeed, it may be that no one knows what LIBOR’s “true” level was for any day during the Class Period. As discussed above, LIBOR is inherently a theoretical value, derived as it is from quotes that are not based directly on any objective data. Moreover, the challenge of determining LIBOR’s “true” level would be compounded with respect to periods of time, such as the Class Period, during which the volume of actual interbank trading was at a significantly reduced level.

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on any given day.

See, e.g., Mollenkamp & Whitehouse, supra

(explaining that default insurance prices, though they provide a good long-term picture of “investors’ assessment of the

financial health of banks,” are imperfect indicators when viewed individually because they are “based on dealers’ quotes, which can be volatile and vary widely in times of market turmoil”); Peng Report (noting that the Federal Reserve Eurodollar Deposit Rate measures the “bid rate,” or rate at which banks are willing to borrow, rather than the “offered rate,” or rate at which banks are willing to lend). Therefore, in contrast to a

situation in which the defendant disseminated false information and the plaintiff can allege precisely when the false statements were made and what was false about them, here plaintiffs cannot reasonably be expected to know the spread between LIBOR’s “true” value and its actual level on any given day, let alone how this spread changed over time. In these circumstances, plaintiffs have adequately alleged actual damages by alleging that they purchased their contracts at an inflated price, that the degree of LIBOR artificiality later changed, and that they suffered damages as a result. That

said, in order to recover, plaintiffs will ultimately need to demonstrate that they sold or settled their Eurodollar contracts at a loss and that this loss resulted from defendants’

misconduct.

We anticipate that meeting this burden might pose a

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serious

challenge

for

plaintiffs,

especially

with

regard

to

Eurodollar contracts that were both purchased and sold within the Class Period. In short, although we have doubts about whether plaintiffs will ultimately be able to demonstrate that they sold or settled their Eurodollar contracts at a loss as a result of defendants’ conduct, defendants we find that they have of adequately Eurodollar alleged contracts that and

manipulated

the

price

that this manipulation caused them actual damages. ii. Manipulation of the Price of the Commodity Underlying Eurodollar Futures Contracts By contrast, plaintiffs do not even have standing to bring suit for commodities of LIBOR manipulation as the when framed as defendants’ Eurodollar

manipulation

commodity

underlying

futures contracts.18 CEA grants a

As discussed above, section 22(a) of the right of action to any person “who

private

purchased or sold a [futures contract] or swap if the violation constitutes . . . (ii) a manipulation of the price of any such contract or swap or the price of the commodity underlying such contract or swap.” 7 U.S.C. § 25(a)(1)(D). A “commodity” is

18

The implication of this conclusion is that, although plaintiffs will proceed on their commodities manipulation claims, they are precluded from pursuing those claims with regard to defendants’ alleged manipulation of LIBOR qua commodity. In order to recover, therefore, they will need to show that defendants specifically intended to manipulate the price of Eurodollar futures contracts, not merely LIBOR itself. As a practical matter, we anticipate that this limitation might have significant repercussions for the relief that plaintiffs are ultimately able to recover.

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broadly

defined in

to

include

“all

services, for future

rights, delivery

and are

interests . . .

which

contracts

presently or in the future dealt in.”

7 U.S.C. § 1a(9).

If plaintiffs had a viable claim for manipulation of LIBOR qua commodity, the claim would be that defendants manipulated “the price of the commodity underlying [the] contract or swap” that plaintiffs purchased or sold. relevant question, therefore, is Id. § 25(a)(1)(D)(ii). not whether LIBOR is The a

“commodity” in some freestanding sense, but rather whether LIBOR is the commodity underlying Eurodollar futures contracts.19 As discussed above, a Eurodollar futures contract is a

For this reason, we need not take a position on what degree of deference we owe, if any, to the CFTC statements cited by plaintiffs. See, e.g., CFTC Order, at 27 (“Barclays’ traders and submitters each specifically intended to affect the price at which the daily BBA LIBOR for U.S. Dollar, Sterling, and Yen (for particular tenors), and the EBF Euribor (for particular tenors), all commodities in interstate commerce, would be fixed.”).

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settlement, the price of a Eurodollar futures contract “is equal to 100 minus the three-month Eurodollar interbank time deposit rate,” which rate is defined as the LIBOR fix on the contract’s last trading day. CME Group, Eurodollar Futures Final

Settlement

Procedure,

http://www.cmegroup.com/trading/

interest-rates/files/final-settlement-procedure-eurodollarfutures.pdf. Prior to settlement, “the price of a 3-month

Eurodollar futures contract is an indication of the market’s prediction of the 3-month Dollar LIBOR on [that] date.” Statement ¶ 9. The only plausible way to characterize the components of a Eurodollar contract is that the underlying commodity is a USD 1,000,000 deposit in a foreign commercial bank with a threemonth maturity, and the price of the contract is settled or traded at a value based on LIBOR. contracts use LIBOR to represent In other words, Eurodollar the price of U.S. dollars DOJ

deposited in commercial banks abroad.

This makes sense because

LIBOR, in theory, is an average of the rates at which banks lend U.S. dollars to each other in the London market. Understood thusly, a Eurodollar futures contract is not

fundamentally different from any other futures contract traded on the CME. For example, in a corn futures contract, the

trading/agricultural/grain-and-oilseed/corn_contract_ specifications.html (last visited Mar. 29, 2013). contracts specified contract require quantity (even the and “short” quality traders to of may deliver corn in to at Because these “long” end of the the into

change, the prices of that commodity in the cash market will usually experience a similar movement.’ obvious: delivered (quoting both markets or involve in the & the The reason for this is commodities (citation Hazen, to be

same

currently I. Philip

future.” Thomas

omitted)

Johnson

Commodities

Regulation § 104 (2d ed. 1989))).

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In

the

context

of

Eurodollar

futures,

even

though

the

“short” is not even nominally required to deliver the underlying cash deposit to the “long,” the contract’s pricing structure, which is what matters here, is the same as with corn futures. Just as in corn futures contracts, the underlying commodity is corn and the price of the contract tracks the price of corn, so in Eurodollar futures contracts, the underlying commodity is a deposit of U.S. dollars in a foreign commercial bank and the price of the contract is based on LIBOR, which represents the price of (i.e. interest on) that deposit. have characterized LIBOR as “the Indeed, plaintiffs price for the

reference

[Eurodollar] futures contract just as the physical prices of soybean or silver are the reference price for their respective futures contracts traded on exchanges.” ¶ 207. Despite understanding advance an apparently of Eurodollar acknowledging contracts in is that correct, the above Exchange Am. Compl.

plaintiffs brief.

alternative

theory

their

opposition

Specifically, plaintiffs maintain that the underlying commodity of Eurodollar futures contracts is LIBOR and the price of those contracts is “the level of LIBOR.” Exchange Opp’n 10. This

characterization strikes us as strained, at best.

Indeed, if

there is any meaningful distinction between the London Interbank Offered Rate and the “level of” that rate, it eludes us.

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Therefore,

LIBOR

is

not

the

commodity

underlying

Eurodollar

futures contracts, and plaintiffs do not have standing to bring suit against defendants based on the manipulation of LIBOR as a commodity. c. Vicarious Liability Plaintiffs liability for also assert a cause of action for vicarious regard to

commodities

manipulation.

With

vicarious liability, section 2(a)(1) of the CEA provides: The act, omission, or failure of any official, agent, or other person acting for any individual, association, partnership, corporation, or trust within the scope of his employment or office shall be deemed the act, omission, or failure of such individual, association, partnership, corporation, or trust, as well as of such official, agent, or other person. 7 U.S.C. § 2(a)(1)(B). “[T]o state a claim for vicarious

liability, plaintiffs must allege that the principal manifested an intent to grant the agent authority, the agent agreed, and the principal ‘maintain[ed] In Supp. re 2d control over key aspects Gas of the

nor identified any conduct allegedly taken by such agents within the scope of this principal-agent relationship to further the alleged violations of the CEA.” Exchange MTD 29 n.27. In their amended “[i]ndividuals

Defendants’ argument is not convincing. complaint, plaintiffs have identified

several

employed by the Defendants and their affiliates who have engaged in the illegal communications and conduct among Defendants to report ¶ 181. artificially low LIBOR quotes.” Exchange Am. Compl.

For instance, the complaint names Yvan Ducrot, “the Co-

head of UBS’s rates business,” and Holger Seger, “the global head of short-term interest rates trading at UBS.” Id.

According to an article cited by plaintiffs, these persons were suspended by UBS in connection with investigations into the

manipulation of LIBOR. and it is plausible

The employees are clearly agents of UBS, that they contributed to the alleged

manipulation of LIBOR within the scope of their employment. Moreover, the Barclays settlement papers indicate that

Barclays employees contributed to the manipulation of USD LIBOR within the scope of their employment. See, e.g., DOJ Statement

¶ 50 (“Barclays acknowledges that the wrongful acts taken by the participating employees in furtherance of this misconduct set forth above were within the scope of that to their the employment at

Barclays. employees

Barclays intended, at

acknowledges least in

participating Barclays

part,

benefit

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through

the

actions only

decried be able

above.”). to recover

Therefore, on this

although with

plaintiffs

will

claim

regard to those employees involved in the manipulation of USD LIBOR, not of other indices such as Yen LIBOR or TIBOR, we find that plaintiffs have adequately stated a claim for vicarious liability for commodities manipulation. d. Aiding and Abetting Finally, plaintiffs assert a cause of action for aiding and abetting commodities manipulation. Under section 22(a) of the

CEA, plaintiffs may bring suit against “[a]ny person . . . who violates this chapter or who willfully aids, abets, counsels, induces, chapter.” or procures the commission of a violation of this

7 U.S.C. § 25(a)(1).

“[T]o state a claim for aiding

and abetting a violation of the CEA, plaintiffs must allege that a defendant, [1] knowing of a principal's intent to manipulate the market and [2] intending to further that manipulation, In re

[3] performed an act in furtherance of the manipulation.”

Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513, 541 (S.D.N.Y. 2008). Defendants argue that plaintiffs fail to state a claim for aiding and abetting, both because they fail to state a primary violation of the CEA and because they fail to satisfy the

elements set out above.

Exchange MTD 28-29.

At oral argument,

defendants elaborated that even if each bank had an incentive to

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improve the market’s perception of its financial health, this incentive would have given the bank at most an interest in

having a low LIBOR quote itself, not in there being a low LIBOR fix. Tr. 78. Indeed, defendants argued, each defendant would

have wanted “to show [itself] as comparatively healthier than the next bank,” and thus would not have had incentive to aid another bank in submitting a low LIBOR quote. Although we are skeptical, as Id. below, that

discussed

plaintiffs’ aiding and abetting claim involves separate conduct from plaintiffs’ primary claim for commodities manipulation, we find that plaintiffs have adequately stated a claim. discussed above, plaintiffs have adequately First, as that

alleged

defendants committed the primary violation of manipulation of the price of Eurodollar futures contracts. defendants are correct that no defendant Second, although would have had an

incentive to make other banks’ look financially healthier, this is not sufficient to dismiss plaintiffs’ claim. London interbank among lending other market banks, it involved is Given that the lending between each

defendants,

plausible

that

defendant was aware that other defendants’ LIBOR quotes did not reflect borrow. contracts the rate at which those banks actually expected to

Moreover, in light of the fact that Eurodollar futures “are the largest and most actively traded futures

contracts,” Exchange Am. Compl. ¶ 218, each bank likely knew

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that other banks had an interest in manipulating the price of Eurodollar contracts. Additionally, plaintiffs have alleged that the affiliates of all or a substantial number of defendants traded Eurodollar contracts “to the direct benefit of Defendants.” also id. ¶ 218. Id. ¶ 43; see

Thus, it is plausible that defendants had a

common interest not only in LIBOR’s being fixed at an artificial level, but also in the price of Eurodollar contracts being

manipulated.

Even beyond this common interest, moreover, the

Barclays settlement documents suggest that Barclays cooperated with other banks, including banks on the USD LIBOR panel, in ways that were not necessarily in the mutual interest of all parties involved. For example:

From at least approximately August 2005 through at least approximately May 2008, certain Barclays swaps traders communicated with swaps traders at other Contributor Panel banks and other financial institutions about requesting LIBOR and EURIBOR contributions that would be favorable to the trading positions of the Barclays swaps traders and/or their counterparts at other financial institutions. DOJ Statement ¶ 23. Although these allegations do not directly

implicate specific defendants other than Barclays, they indicate that Barclays cooperated with other panel banks in a manner that each bank might not have if it were acting solely in its own interest.

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Finally, submitting

it

is

plausible LIBOR

that

each

bank,

by

allegedly banks’ For

artificial

quotes,

furthered

other

manipulation of the price of Eurodollar futures contracts.

one, as discussed above, each LIBOR quote influenced the final LIBOR fix, whether it was included in the final average or not, and thus influenced the price of Eurodollar futures contracts. Additionally, it is plausible that each defendant furthered

other defendants’ manipulation by submitting a quote that was roughly in line the & with (“clustered of with”) See other Tr. quotes, 75; see thus also

decreasing Mollenkamp

chance

detection. supra

Whitehouse,

(quoting

Stanford

finance

professor’s observation that the USD LIBOR quotes from January 2008 to April 2008 were “‘far too similar to be believed’”). In short, plaintiffs have adequately alleged a claim for aiding and abetting defendants’ manipulation of the price of Eurodollar questions plaintiffs futures about any contracts. this beyond That claim those said, would we have serious awarding on the

whether damages

support based

awarded

underlying manipulation claim.

It appears that the only way a

defendant could aid or abet another defendants’ manipulation is by itself submitting an artificial LIBOR quote. Moreover,

because an aiding and abetting claim would require the specific intent to further another defendant’s manipulation of the price of Eurodollar futures contracts, it would seem that the scienter

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element plaintiffs would need to satisfy for aiding and abetting would be the same as the scienter element for the primary CEA violation. Therefore, it is hard for us to envision a scenario

in which we would award plaintiffs any damages based on their aiding and abetting claim beyond what they would be awarded based on their underlying manipulation claim. If, after

discovery, it appears that the aiding and abetting claim is wholly duplicative of the primary claim, plaintiffs will not have the benefit of submitting both claims to the factfinder. C. RICO Claim The Schwab plaintiffs assert a single cause of action for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968 (2006 & Supp. III 2009). Defendants have moved to dismiss this claim on six grounds: (1) the claim is barred by the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), Pub. L. No. 104-67, 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.); (2) the claim seeks an impermissible extraterritorial application of U.S. law; (3) plaintiffs lack standing; (4) plaintiffs fail to plead predicate acts of racketeering; (5) plaintiffs fail to plead a pattern of racketeering activity; and (6) to the extent plaintiffs assert a claim for conspiracy to violate RICO,

plaintiffs fail to state a claim.

We find that each of the

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first claim.

two

grounds

is

sufficient

to

dismiss

plaintiffs’

RICO

1. RICO Although we do not need to decide whether plaintiffs have adequately pleaded their RICO claim, a brief overview of RICO and its alleged application to the present facts is necessary to provide context to the issues we do need to decide. Under 18

U.S.C. § 1962(c), it is unlawful for “any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or or foreign commerce, in the to conduct of or

participate, enterprise's activity.”

directly affairs

indirectly, a

conduct of

such

through

pattern

racketeering

18 U.S.C. § 1962(c).

The RICO statute grants a

private right of action to “[a]ny person injured in his business or property by reason of a violation of section 1962.” U.S.C. § 1964(c). attorney’s fees. One way of 18

Plaintiffs may recover treble damages and Id. pleading an enterprise is to allege an

“association in fact,” that is, “a group of persons associated together conduct.” for a common purpose of engaging in a course of

claim for mail or wire fraud, a plaintiff must allege “(1) the existence of a scheme to defraud, (2) the defendant's knowing or intentional participation in the scheme, and (3) the use of interstate mails or transmission facilities in furtherance of the scheme.” Odyssey Re (London) Ltd. v. Stirling Cooke Brown

institution” or “to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1344.

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A pattern of racketeering activity requires “at least two acts of racketeering activity” occurring within ten years of each other. racketeering Id. § 1961(5). activity, “[T]o establish a ‘pattern’ of ‘must show [1] that the

plaintiffs

racketeering predicates are related, and [2] that they amount to or pose a threat of continued criminal activity.” Jerome M.

the scheme, and ensured it continued uninterrupted by concealing their manipulation of LIBOR from investors, including

[plaintiffs].” direct and

Id. ¶ 232.

Plaintiffs allege that they suffered injury from defendants’ for scheme by

foreseeable pa[ying]

“unknowingly

money

to

Defendants

LIBOR-based

financial instruments that paid interest at a manipulated rate, and in fact collect[ing] less interest than they would have absent the conspiracy.” Id. ¶ 234. 2. The PSLRA Plaintiffs’ RICO claim is barred by the PSLRA. In a

provision that has become known as the “RICO Amendment,” the PSLRA amended RICO to provide that “no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.” 18 U.S.C. § 1964(c). This provision is interpreted “broadly,”

See Eagletech, 2008 WL 3166533, at *14 acts as a bar to Plaintiffs' RICO

PSLRA

claims” because “the predicate acts are actionable as securities fraud and may be prosecuted by the SEC”). The question here,

therefore, is whether the predicate acts of plaintiffs’ RICO claim could have been the subject of a securities fraud action brought either by plaintiffs themselves or by the SEC. a. Securities Fraud Under section 10(b) of the ‘34 Act, the provision

criminalizing securities fraud: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange — . . . To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j. Because the requirements for the SEC to bring suit for securities fraud are less stringent than the requirements for a private plaintiff to bring suit, see SEC v. Boock, No. 09 Civ. 8261, 2011 WL 3792819, at *21 (S.D.N.Y. Aug. 25, 2011), the dispositive inquiry is whether the alleged predicate acts could

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form the basis for a securities fraud suit by the SEC, see Eagletech, 2008 WL 3166533, at *14. The SEC may assert a cause

of action for securities fraud if it alleges that the defendant: “(1) made a material misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities.” Monarch (internal Funding Boock, 2011 WL 3792819, at *21 (quoting SEC v. Corp., 192 F.3d 295, 308 cf. (2d Cir. 1999)) WL

quotation

marks

omitted);

Gilmore,

2011

3874880, at *4 (holding that a private plaintiff asserting a cause of action for securities fraud under section 10(b) would need to prove, in addition to the above three elements: (1) reliance by plaintiff on defendant’s misrepresentation or

omission, (2) economic loss, and (3) loss causation). To prove scienter, the SEC must demonstrate the defendant’s “intent to deceive, manipulate, or defraud, or knowing

defendant’s material misrepresentation or omission was made “in connection with the purchase or sale of securities,” the SEC need only show that “the scheme to defraud and the sale of securities coincide[d].” 341 F. Supp. 2d 363, Seippel v. Jenkens & Gilchrest, P.C., 373 (S.D.N.Y. 2004) (quoting SEC v.

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Zandford, 535 U.S. 813, 820 (2002)) (internal quotation marks omitted). The scheme to defraud and the sale of securities

“coincide” when they are not “independent events,” id. at 374 (quoting Zandford, 535 U.S. at 820), but rather “are ‘less

tangentially related,’ or more closely dependent on each other,” id. (quoting Jacoboni v. KPMG LLP, 314 F. Supp. 2d 1172, 1179 (M.D. Fla. 2004)). plaintiff purchased or In other words, although showing that the a security by the in reliance on a the

misrepresentation

omission

defendant

regarding

security’s value would likely be sufficient to satisfy the “in connection with” element, such a showing would not be necessary. See id. at 373. Indeed, the “in connection with” element should

be “construed not technically and restrictively, but flexibly to effectuate [the statute's] remedial purposes.” Id. at 372

(quoting Zandford, 535 U.S. at 819) (internal quotation marks omitted).” b. Application of the RICO Amendment Plaintiffs concede that at least some of the LIBOR-based financial securities. instruments they purchased from defendants were

Schwab Opp’n 5-10.

At least with regard to these

instruments, the conduct alleged by plaintiffs could have been the subject of a suit for securities fraud brought by the SEC. First, defendants allegedly “made a material

mailings and wire transmissions that actually were directed to Plaintiffs are not alleged to have been false or misleading.” Schwab Opp’n 9; see also Tr. 88. Rather, plaintiffs maintain,

“Defendants’ misrepresentations were directed not at buyers of specific securities, but at the BBA.” Tr. 88. Schwab Opp’n 9; see also

This argument, however, is in irreconcilable tension

with plaintiffs’ allegation that defendants sent them mailings and wires for the purpose of obtaining money from them through “false or fraudulent pretenses, representations, or promises.”

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Schwab Bank Am. Compl. ¶¶ 224-25. reading of this allegation could

Only through a contorted plaintiffs suggest that

defendants’ “false or fraudulent pretenses, representations, or promises” were made not in the mailings and wires to plaintiffs, but rather in wires to the BBA. A more plausible reading of

plaintiffs’ allegations is that the misleading statements were made to plaintiffs in the offering materials they received from defendants. Indeed, such a reading makes sense. If the offering

materials described how LIBOR was calculated by reference to the “proper” procedures rather than the manipulation that allegedly was occurring, they would contain a material misrepresentation. If they did not describe how LIBOR was calculated, they would still be omitting that LIBOR was being manipulated, surely a material omission. The allegations in plaintiffs’ original complaints confirm our conclusion that the offering materials defendants sent

that defendants made misleading statements in connection with the sale of securities. “Defendants, directly of and Specifically, plaintiffs alleged that indirectly, by the or use, of means or

instrumentalities

interstate

commerce

the

mails,

engaged and participated in a continuous course of conduct to conceal adverse material information about the manipulation of

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LIBOR.”

Schwab

Bank

Compl.

¶

141.

Further,

defendants’

fraudulent conduct included: the making of, or participation in the making of, untrue statements of material facts and omitting to state material facts necessary to make Defendants’ statements during the Relevant Period — including their representations that the rates of the securities Defendants sold to Plaintiffs were based on LIBOR — in the light of the circumstances under which they were made, not misleading. Id. ¶ 142. upon the In sum, defendants’ conduct constituted a “deceit purchasers of the subject securities Id. during the

Relevant Period, including Plaintiffs.”

While we acknowledge that some of these allegations track statutory factual factual indicate provisions, and nevertheless, of the allegations have been are of a on

nature

must,

necessity, read, these

based

positions. that

Fairly

allegations

plainly to

defendants

made

misleading

statements

plaintiffs, likely in the offering materials themselves but, at any rate, certainly “in connection with” defendants’ sale of LIBOR-based securities to plaintiffs. allegations are not conclusive While it is true that the and thus may be

plaintiffs’ attempt to rebut them is unconvincing. plaintiffs now assert that the offering materials

Although did not

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contain misrepresentations and generally were not misleading, they do not deny that the offering materials omitted the fact that LIBOR was being manipulated. deny this would be absurd: Indeed, for plaintiffs to argument that they

plaintiffs’

“rel[ied] on the accuracy of LIBOR when [they] entered into the purchases,” Tr. 87, requires the conclusion that the offering materials omitted the alleged material fact that LIBOR was being manipulated. In light of the allegations in plaintiffs’ original and amended complaints, it seems clear that the offering materials defendants sent plaintiffs or material of contained omissions. fraud either material the been that

to plaintiffs were clearly made in connection with the purchase or sale of securities. Therefore, the mailings and wires by

which defendants offered LIBOR-based securities to plaintiffs could, at a minimum, have been the subject of a securities fraud action brought by the SEC. Additionally, all of defendants’ misrepresentations to the BBA would likely be grounds for a securities fraud claim by the SEC. First, plaintiffs sent by allege in that among the of wire their

which apparently refer to the wires that defendants sent daily to the BBA, would clearly be material misrepresentations. Schwab Opp’n 9; Tr. 88. alleged scienter. See

Second, plaintiffs have explicitly

Schwab Bank Am. Compl. ¶ 225.

Finally, defendants’ “phony statements” to the BBA, under plaintiffs’ own construct, would qualify as having been made “in connection with” the purchase or sale of securities. plaintiffs did not rely on each defendant’s LIBOR Even if quote in

deciding to purchase LIBOR-based securities, it is sufficient that “the scheme to defraud and the sale of securities

being “independent events,” id. at 374 (quoting Zandford, 535 U.S. at 820), defendants’ scheme to defraud and their sale of securities to plaintiffs were “closely dependent on each other,” id. Indeed, one of the alleged reasons why defendants

“transmit[ted] phony statements about their costs of borrowing” to the BBA was in order to “obtain[] money from holders of LIBOR-based financial instruments through ‘false or fraudulent pretenses, representations, or promises’ about LIBOR-based

financial instruments.”

Schwab Bank Am. Compl. ¶ 225; see also

id. ¶ 5 (alleging that one of defendants’ “primary reasons” for engaging in their fraudulent scheme was that “artificially

investors, including [plaintiffs], during the Relevant Period”). Although defendants’ misrepresentations to the BBA may have been intended in part to facilitate defendants’ sale of nonsecurity instruments, it remains the case, given that certain of the LIBOR-based financial instruments that defendants sought to sell to plaintiffs were securities, that a significant part of the alleged reason for all of defendants’ misrepresentations to the BBA was to defraud purchasers of securities. In short,

because defendants’ alleged misrepresentations to the BBA were allegedly made for the purpose of profiting unfairly from their sale of securities to plaintiffs, defendants’ misrepresentations

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to

the

BBA

were

made

“in

connection all of

with”

the

sale

of

securities.

Therefore,

defendants’

alleged

misrepresentations to the BBA would be grounds for a securities fraud action brought by the SEC.20 Plaintiffs argue that even if their RICO claim may not rely on predicate acts that would have been grounds for a securities fraud suit, the claim should survive to the extent it involves predicate acts that would not have been actionable as securities fraud. Schwab Opp’n 5-7. Such predicate acts might include

communications offering non-security financial instruments. Plaintiffs’ argument is inconsistent with how courts have consistently applied the RICO Amendment. Specifically, where

plaintiffs allege “a single scheme,” courts have held that “if any predicate act is barred by the PSLRA it is fatal to the entire RICO claim.” Ling v. Deutsche Bank, No. 04 CV 45662005,

It is of no avail to plaintiffs that they allege that they “do not base their RICO claim[] on any conduct that would have been actionable as fraud in the purchase or sale of securities.” Schwab Bank Am. Compl. ¶ 227. First, this is a legal conclusion that we need not accept as true. Second, regardless of whether plaintiffs are correct that they could not have brought a private action for securities fraud based on the alleged RICO predicate acts, those predicate acts could, as discussed above, have been the basis for a securities fraud action brought by the SEC. This is sufficient for plaintiffs’ RICO claim to be barred under the PSLRA’s RICO Amendment.

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[defendant’s outside financial and investment advisor] engaged in a multi-year scheme to defraud him and his siblings by

looting the family companies through self-dealing, fraudulent securities transactions, and overbilling.” Id. at *2. The

Court held that defendant’s alleged plots to loot the family companies “count[ed] as a single scheme.” Id. at *6.

Therefore, “the securities aspects of the fraud [needed to] be aggregated with the non-securities aspects.” Id. In other

words, having alleged that defendant’s acts “were part of a single fraudulent scheme[,] the [plaintiff] [could not] divide the scheme into its various component parts,” as “such surgical presentation . . . would undermine the Congressional purpose” behind the RICO Amendment. Id. (quoting Seippel v. Jenkens &

Gilchrest, P.C., 341 F. Supp. 2d 363, 373 (S.D.N.Y. 2004)). Because there was “no action genuine could dispute have been that components under of the

Plaintiffs

alleged

brought

securities laws,” the Court dismissed plaintiff’s RICO claims. Id. Similarly, in Ling v. Deutsche Bank, 2005 WL 1244689, the Court dismissed RICO claims based on a fraudulent scheme to offer illegitimate tax strategy advice where “[f]or at least some of the[] individual Plaintiffs, the sale of securities was necessary to effectuate the tax strategy.” Id. at *6. Because

“the Plaintiffs contend[ed] the wrongful acts were committed as

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part

of

a to]

single be

fraudulent considered

scheme, together

all for

of

the

components fraud

[needed

securities

purposes.”

Id. at *4.

Here, the PSLRA bars plaintiffs’ RICO claim despite the fact that certain of the alleged predicate acts might not have been actionable as securities that fraud. Plaintiffs have a

unambiguously

alleged

defendants’

conduct

constituted

single fraudulent scheme.

See, e.g., Schwab Bank Am. Compl.

¶ 219 (alleging that defendants formed an association-in-fact enterprise with the “common purpose” of “using [their] false quotes to cause the BBA to set LIBOR artificially low, thereby allowing Defendants to increase their net interest revenues by making artificially low payment to investors such as

[plaintiffs]”).

Because they have done so, and because some of

the alleged predicate acts could have been grounds at least for a securities fraud action brought by the SEC, plaintiffs’ RICO claim, in its entirety, is barred by the PSLRA. 3. Extraterritoriality Apart plaintiffs’ from being barred claim by the PSLRA’s on an RICO Amendment,

canon of construction applicable to any statute, a half-dozen courts have applied its reasoning in the RICO context. courts have uniformly held that and RICO that, is silent as These to its it

extraterritorial therefore has

application none.”).

under

Morrison, not

Therefore,

RICO

does

apply

extraterritorially.21
21

It is irrelevant whether the statutes prohibiting the alleged predicate

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Second, if a statute applies only domestically, a court must determine which domestic conduct the statute regulates by reference to “the ‘focus’ of congressional concern.” Morrison, With

130 S. Ct. at 2884 (quoting Aramco, 499 U.S. at 255).

regard to RICO, some courts have found that the statute focuses on the enterprise. See, e.g. Cedeno v. Intech Group, Inc., 733

F. Supp. 2d 471, 474 (S.D.N.Y. 2010) (“[T]he focus of RICO is on the enterprise as the recipient of, or cover for, a pattern of criminal activity. . . . RICO does not apply where, as here, the alleged enterprise and the impact of the predicate activity upon it are entirely foreign.”); see also Mitsui, 871 F. Supp. 2d at 938 (“[C]ourts ‘it is have the broadly agreed that that . . . is the of in the of RICO the

committed in the United States — that were exactly what Congress enacted probably RICO was to eradicate,” with and “the concluding conduct of that the Congress of

concerned

affairs

foreign enterprises through patterns of racketeering activity, at least if the prohibited activities injured Americans in this country and occurred here, either entirely or in significant part”). The Second Circuit has not decided this issue. See

Cedeno v. Castillo, 457 F. App’x 35, 37 (2d Cir. 2012). We agree with the Court in Cedeno that the focus of RICO is on the enterprise. In any RICO complaint, each of the predicate

acts would be actionable independently, criminally and possibly also civilly. activity”). criminal acts See 18 U.S.C. § 1961(1) (defining “racketeering The to additional a RICO element is that the elevates isolated of an

violation

involvement

enterprise, either as a passive victim of racketeering activity or as an active mechanism the of for perpetrating Court to has the racketeering that a the two

activity. primary

Indeed, purposes

Supreme are

held

RICO

“protect[]

legitimate

‘enterprise’ from those who would use unlawful acts to victimize it,” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164 (2001) (citing United States v. Turkette, 452 U.S. 576, 591 (1981)), and to use as “protect[] an a the public from those who would or

unlawfully illegitimate)

‘enterprise’ ‘vehicle’

(whether which

legitimate

through

‘unlawful . . .

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activity is committed,’” id. (quoting Nat’l Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 259 (1994)); see also European

Cmty., 2011 WL 843957, at *5 (reasoning that RICO “does not punish the predicate acts of racketeering activity . . . but only racketeering activity in connection with an ‘enterprise,’” and that the statute “seeks to regulate ‘enterprises’ by

protecting them from being victimized by or conducted through racketeering activity”). not a recidivist As the Cedeno Court reasoned, “RICO is designed to punish someone for

statute

committing a pattern of multiple criminal acts[, but rather] prohibits the use of such a pattern to impact an enterprise.” Cedeno, 733 F. Supp. 2d at 473. Therefore, we conclude that Under

Congress’s focus in enacting RICO was the enterprise.

Morrison, a RICO enterprise must be a “domestic enterprise.” European Cmty., 2011 WL 843957, at *5. b. The Location of the Alleged RICO Enterprise To determine where an enterprise is located, courts have employed the “nerve center” test, adopted from the Supreme

Court’s use of that test in Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), to locate a corporation’s principal place of

business for purposes of diversity jurisdiction.

See, e.g.,

European Cmty., 2011 WL 843957, at *5-6; see also Mitsui, 871 F. Supp. 2d at 940 (“The nerve center test provides a familiar, consistent, and administrable method for determining the

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territoriality of RICO enterprises in cases such as the one at bar, which blend domestic and foreign elements.”). As

articulated in Hertz, the “nerve center” of a corporation is “the place where a corporation's officers direct, control, and coordinate the corporation's activities.” 1192. “RICO Hertz, 130 S. Ct. at

In the RICO context, courts have found that although enterprises . . . may not have a single center of

corporate policy,” the test is nonetheless useful in focusing on the “brains” of the enterprise – where its decisions are made – as opposed to its “brawn” – where its conduct occurs. Cmty., 2011 WL 843957, at *6. Here, for obvious reasons, plaintiffs resist the most European

natural way to apply RICO to the factual circumstances, namely to identify the BBA as the enterprise and to allege that the BBA’s LIBOR-setting process had been corrupted by defendants and used to carry out a pattern of racketeering activity. Because

the BBA is plainly a foreign enterprise, such a construct would result in an impermissible extraterritorial application of RICO. Therefore, plaintiffs have alleged that the enterprise is an association in fact whose members are the BBA panel banks, and their affiliates, and whose purpose is to submit artificially low LIBOR quotes to the BBA so that LIBOR is fixed at

strikes us as a strained attempt by plaintiffs to plead around an obvious defect in their theory. Even evaluating plaintiffs’ construct of an association-infact enterprise on its merits, the enterprise would be foreign. In locating the enterprise, the nerve center test, despite its usefulness in other of the cases, alleged has little value likely here. occurred The in

decisionmaking

enterprise

several different countries, and might even have been located in each of the countries in which a defendant was headquartered. See Schwab Bank Am. Compl. ¶¶ 20-35 (identifying the countries of defendants’ the headquarters as the United States, England, and

Japan,

Netherlands,

Switzerland,

Germany,

Canada,

Scotland).

Plaintiffs have not alleged that defendants met in

any one physical location in furtherance of their fraudulent scheme; rather, they have alleged that “Defendants used the

mails and wires in conjunction with reaching their agreement to make false statements about their costs of borrowing, to

manipulate LIBOR.”

Schwab Bank Am. Compl. ¶ 226.

Indeed, if

plaintiffs are correct that defendants joined together to fix LIBOR over the course of several years, it would seem highly improbable that defendants physically met in one location to discuss the scheme. Therefore, because the decisionmaking in

furtherance of the alleged scheme would likely have occurred in

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many countries, the “nerve center” test does not point us to a single location. Given that the location of the enterprise’s “brain” is

indeterminate, we will consider the location of the enterprise’s “brawn,” or where the enterprise acted. scheme essentially comprised two parts: The alleged fraudulent (1) the defendants’

submission of artificial LIBOR quotes to the BBA, and (2) each defendant’s customers. sale of LIBOR-based financial instruments to its

The first part involves joint action: the defendants

allegedly agreed to coordinate their LIBOR submissions such that they would each submit an artificially low quote to the BBA each day. Indeed, giving the formula for calculating LIBOR, the only

way to have a significant effect on the final LIBOR fix is through coordinated, collective action. The second part, by

contrast, is independent: even if all of the defendants had a common interest in a low LIBOR fix, each defendant acted

independently in selling LIBOR-based financial instruments to its customers. In locating a RICO enterprise based on its activities, it makes sense to focus on activities done collectively. As

discussed above, the focus of Congressional concern in enacting RICO was the RICO enterprise; in the context of an associationin-fact enterprise, commission the of focus is not acts, each but defendant’s rather the

independent

predicate

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association

of

defendants

together

to

commit

predicate

acts.

Therefore, based on defendants’ collective submission of false LIBOR quotes to the BBA, we find that the alleged RICO

enterprise is located in England.

The defendants were each

members of the BBA, an entity based in England, and participated in the affairs of the BBA by submitting quotes each day to the BBA. In other words, the collective action of defendants

centered on the BBA.

As the BBA is located in England, the most

sensible place to locate the RICO enterprise is England.22 Because RICO applies only to domestic enterprises, and because the enterprise alleged here was located abroad, plaintiffs’ claim involves an impermissible extraterritorial application of U.S law. Accordingly, plaintiffs’ RICO claim is dismissed. D. State-Law Claims At least one state-law cause of action is asserted in the OTC amended complaint, the Schwab amended complaints, and the exchange-based plaintiffs’ amended complaint. For the reasons

22

Even if we considered the second stage of the alleged fraud - each defendant’s sale of LIBOR-based financial instruments to its customers - we would not necessarily locate the enterprise in the United States. Contrary to plaintiffs’ argument, Tr. 97, the fact that only U.S. customers have brought suit pursuant to RICO does not indicate that defendants in fact targeted their sale of LIBOR-based instruments at the U.S. Because LIBOR is a reference point around the world, id., it seems likely that defendants, which are headquartered around the world, would have sold LIBOR-based financial instruments to plaintiffs around the world. Consequently, even if we focused on where defendants sold LIBOR-based instruments, our analysis would not necessarily point to the United States. Furthermore, given that the first stage of the alleged fraud clearly centered on England, the indeterminate location of the second stage reinforces our conclusion that the alleged RICO enterprise was located abroad.

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stated below, we decline to exercise supplemental jurisdiction over the state-law claims in the OTC amended complaint and the Schwab amended complaints, pursuant with to the the exception of the Act. Schwab The

plaintiffs’

claim

Cartwright

Cartwright Act claim and the exchange-based plaintiffs’ statelaw claim are dismissed with prejudice. 1. OTC Amended Complaint The OTC amended complaint asserts a cause of action for unjust enrichment and restitution, without stating which state’s common law it seeks to apply. OTC Am. Compl. ¶¶ 227-30. The

only other cause of action asserted the amended complaint is for violation of section 1 of the Sherman Act, id. ¶¶ 220-26, and, as discussed above, we are dismissing this claim for failure to allege antitrust injury. Thus, the question before us is

whether we should exercise supplemental jurisdiction over the state common law claim in light of the fact that no federal causes of action remain.23

Although it is conceivable that we could retain jurisdiction over this claim by virtue of diversity of citizenship, we need not consider this ground because plaintiffs have not pled it. “It is the plaintiff's burden to plead and prove subject matter jurisdiction.” Moses v. Deutche Bank Nat. Trust Co., No. 11–cv–5002 (ENV) (VVP), 2012 WL 2017706, at *1 (E.D.N.Y. June 5, 2012) (citing Standard Chartered Bank Malaysia Holdings v. Lehman Bros. Asia Holdings Ltd., No. 08 CV 8152, 2008 WL 4355355, at *1 (S.D.N.Y. Sept. 22, 2008)). Here, plaintiffs have not pleaded that this Court has diversity jurisdiction over their state law claim, nor have they alleged facts that would support our exercise of diversity jurisdiction. Therefore, if we have jurisdiction over plaintiffs’ state-law claim, it is not by virtue of diversity of citizenship.

23

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Under 28 U.S.C. § 1367, “district courts may decline to exercise supplemental jurisdiction over a [state law claim]

if - . . . (3) the district court has dismissed all claims over which it has original jurisdiction.” 28 U.S.C. § 1367(c)

(2006).

In Kolari v. New York-Presbyterian Hosp., 455 F.3d 118

(2d Cir. 2006), the Second Circuit held that “[o]nce a district court's discretion is triggered under [section] 1367(c)(3), it balances the traditional fairness, and Id. ‘values comity’ at 122 of in judicial deciding economy, to

aided by the Supreme Court's additional guidance in [CarnegieMellon University v. Cohill, 484 U.S. 343,] that ‘in the usual case in which all federal-law claims are eliminated before

trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state-law claims.’” Kolari, 455 F.3d at 122 (alteration in original) (quoting

Cohill, 484 U.S. at 350 n.7).

Indeed, as the Supreme Court

explained in United Mine Workers of America v. Gibbs, 383 U.S. 715 (1966), superseded by statute, 28 U.S.C. § 1367, “[n]eedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of applicable law.” Id. at 726.

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Here,

considerations

of

judicial

economy,

convenience,

fairness, and comity suggest that we should decline to exercise supplemental state-law commenced, jurisdiction First, not over plaintiffs’ that as-yet-unspecifiedhas not yet

claim. it

given

discovery

would

significantly

compromise

judicial

economy for another court to start afresh on plaintiffs’ state law claim. Second, it would in not light be of the early stage of the for

proceedings,

particularly

inconvenient

plaintiffs to refile their amended complaint in state court. Third, considerations of fairness suggest that plaintiffs’ Finally,

state-law claim would best be decided in state court.

comity to the States counsels us not to decide unnecessarily a question of state law. In sum, we find that in this case, as in

“the usual case in which all federal-law claims are eliminated before trial,” the Cohill factors “point toward declining to exercise jurisdiction over the remaining state-law claims.”

breach of the implied covenant of good faith, id. ¶¶ 250-55, and (4) unjust enrichment, id. ¶¶ 256-63. these claims other than the With regard to each of Act claim, the same

Cartwright

considerations of judicial economy, convenience, fairness, and comity that counsel over to us to OTC to decline to exercise state-law supplemental claim also

jurisdiction counsel here.24 us

the

plaintiffs’ exercise

decline

supplemental

jurisdiction

In light of the early stage of the proceedings, there is

no reason why a California court should not decide plaintiffs’ California common law claims. With regard to plaintiffs’ cause of action for violation of the Cartwright Act, the Cohill factors suggest a different

result.

As discussed earlier, California courts interpreting

the Cartwright Act have required plaintiffs to satisfy the same antitrust injury requirement that federal courts have applied in the context of the Sherman and Clayton Acts. See Flagship

Like the OTC plaintiffs, the Schwab plaintiffs do not allege that we have diversity jurisdiction, nor do they allege facts that would support our exercise of diversity jurisdiction. See Schwab Bank Am. Compl. ¶ 14; Schwab Money Am. Compl. ¶ 14; Schwab Bond Am. Compl. ¶ 14. Therefore, we need not consider whether we have jurisdiction over plaintiffs’ state-law claims by virtue of diversity.

plaintiff must show that it was injured by the anticompetitive aspects or effects of the defendant's conduct, as opposed to being injured by the conduct's neutral or even procompetitive aspects.”). to allege Therefore, our decision that plaintiffs have failed an antitrust injury applies equally to their

Cartwright Act claims. In these circumstances, considerations of judicial economy, convenience, fairness, and comity suggest that we should

analysis of antitrust injury in the federal context is also sufficient to dispose of plaintiff’s Cartwright Act claims,

there is no reason for another court to duplicate our efforts. Second, with regard to the parties’ convenience, although it would be easy for plaintiffs to refile their claim in state court, it would also be an unnecessary burden for defendants to relitigate an issue that has already been decided here. Third,

although fairness to the parties often suggests that issues of state law should be decided by courts of that state, there is nothing unfair about our deciding the issue of antitrust injury

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in the context of the Cartwright Act given that this requirement is directly based on the federal antitrust injury requirement. Finally, because California has chosen to streamline its

Cartwright Act jurisprudence with federal antitrust law to the extent that California of of courts have endorsed there favor are of the not federal strong to

pursuant to New York law for “restitution/disgorgement/unjust enrichment.” Exchange Am. Compl. ¶¶ 250-53.25 As discussed

above, plaintiffs’ CEA claims will, in part, survive defendants’ motion to dismiss. claim is also Plaintiffs have alleged that their state-law before us pursuant to our diversity

properly

jurisdiction and supplemental jurisdiction, and defendants have

25

Although the amended complaint does not specify which state’s law the plaintiffs are seeking to apply, the parties have assumed for purposes of briefing that the claim is asserted pursuant to New York common law. Accordingly, we will analyze this claim under New York law.

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not disputed this.

Defendants have, however, moved to dismiss

plaintiffs’ state-law cause of action for failure to state a claim. Exchange MTD 29-31.

Under New York law, “‘[t]he theory of unjust enrichment lies as a quasi-contract claim’ and contemplates ‘an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties.’” Georgia Malone & Co.,

Inc. v. Rieder, 19 N.Y.3d 511, 516 (2012) (quoting IDT Corp. v Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 142 (2009)). In order to state a claim for unjust enrichment, a plaintiff must allege that “(1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.” Id. (quoting Mandarin Trading Ltd. V.

Wildenstein, 16 N.Y.3d 173, 182 (2011) (internal quotation mark omitted). Given that unjust enrichment is a claim in quasi-contract, it requires some relationship between plaintiff and defendant: “while ‘a plaintiff need not be in privity with the defendant to state a claim for unjust enrichment,’ there must exist a

relationship or connection between the parties that is not ‘too attenuated.’” Id. (quoting Sperry v. Crompton Corp., 8 N.Y.3d Where plaintiff and defendant “simply had

204, 215-16 (2007)).

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no

dealings

with

each

other,”

their

relationship

is

“too

attenuated.”

Georgia Malone, 19 N.Y.3d at 517-518.

Here, the relationship between plaintiffs and defendants, to the extent that there was any relationship, is surely too attenuated to support an unjust enrichment claim. Although

Compl. ¶¶ 214-15, they have not alleged that they purchased Eurodollar contracts from defendants or that they had any other relationship with defendants. In other words, even if

plaintiffs are correct that “the direct and foreseeable effect of the Defendants’ intentional understatements of their LIBOR rate was to cause Plaintiffs and the Class to pay supra-

competitive prices for CME Eurodollar futures contracts,” id. ¶ 217; see also Exchange Opp’n 36, this does not establish a

relationship, of any sort, between plaintiffs and defendants. Cf. In re Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513, 547 (S.D.N.Y. 2008) (“Plaintiffs have alleged that their losses were caused by defendants' market manipulations . . . . But they have not alleged any direct relationship, trading or otherwise, between themselves and [defendants]. The alleged link between plaintiffs and defendants from defendants'

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manipulations

to

the

general

natural

gas

futures

market

to

plaintiffs' trades - is too attenuated to support an unjust enrichment claim.”). Because plaintiffs have not alleged any relationship

between themselves and defendants, they fail to state a claim for unjust enrichment under New York law. Accordingly,

plaintiffs’ unjust enrichment claim is dismissed. IV. Conclusion For dismiss the are reasons granted motion to stated in part above, and defendants’ in motions to

denied

part.

First, antitrust

defendants’

dismiss

plaintiffs’

federal

claim is granted.

Regardless of whether defendants’ conduct

constituted a violation of the antitrust laws, plaintiffs may not bring suit unless they have suffered an “antitrust injury.” An antitrust injury is an injury that results from an

anticompetitive aspect of defendants’ conduct.

Here, although

plaintiffs have alleged that defendants conspired to suppress LIBOR over a nearly three-year-long period and that they were injured as a result, they have not alleged that their injury resulted from any harm to competition. The process by which

banks submit LIBOR quotes to the BBA is not itself competitive, and plaintiffs have not alleged that defendants’ conduct had an anticompetitive effect in any market in which defendants

commodities manipulation claims is granted in part and denied in part. Contrary to defendants’ arguments, plaintiffs’ claims do

not involve an impermissible extraterritorial application of the CEA, and plaintiffs have adequately pleaded their claims.

However, certain of plaintiffs’ claims are time-barred because numerous articles published in April and May 2008 in prominent national injury. publications placed plaintiffs on notice of their

Therefore, plaintiffs’ commodities manipulation claims

based on contracts entered into between August 2007 and May 29, 2008, are time-barred. However, plaintiffs’ claims based on

contracts entered into between April 15, 2009, and May 2010 are not time-barred, and plaintiffs’ claims based on contracts

entered into between May 30, 2008, and April 14, 2009, may or may not be barred, though we will not dismiss them at this stage. Additionally, because the Barclays settlements brought

to light information that plaintiffs might not previously have been able to learn, we grant plaintiffs leave to move to amend their complaint to include that any allegations such based on such the

information,

provided

motion

addresses

concerns raised herein and is accompanied by a proposed second amended complaint.

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Third, defendants’ motion to dismiss plaintiffs’ RICO claim is granted. For one, the PSLRA bars plaintiffs from bringing a

RICO claim based on predicate acts that could have been the subject of a securities fraud action. Here, the predicate acts

of mail and wire fraud underlying plaintiffs’ RICO claim could have been the subject of a claim for securities fraud.

Additionally, RICO applies only domestically, meaning that the alleged “enterprise” must be a domestic enterprise. However, For

the enterprise alleged by plaintiffs is based in England. these reasons, plaintiffs’ RICO claim is dismissed.

Finally, plaintiffs’ state-law claims are all dismissed, some with prejudice and some without. Plaintiffs’ Cartwright

Act claim is dismissed with prejudice for lack of antitrust injury. The exchange-based plaintiffs’ New York common law

unjust enrichment claim is also dismissed with prejudice, as plaintiffs have not alleged any relationship between them and defendants. decline to With regard to the remaining state-law claims, we exercise supplemental jurisdiction and therefore

dismiss the claims without prejudice. We recognize that it might be unexpected that we are

dismissing a substantial portion of plaintiffs’ claims, given that several of the defendants here have already paid penalties to government regulatory agencies reaching into the billions of dollars. However, these results are not as incongruous as they

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might seem. requirements

Under the statutes invoked here, there are many that private plaintiffs must satisfy, but which

government agencies need not. requirements private is that the even

The reason for these differing of public enforcement are and not

focuses of the

enforcement, The

same

statutes, behind the

identical.

broad

public

interests

statutes

invoked here, such as integrity of the markets and competition, are being addressed by ongoing governmental enforcement. While

public enforcement is often supplemented by suits brought by private parties acting as “private attorneys general,” those

private actions which seek damages and attorney’s fees must be examined closely to ensure that the plaintiffs who are suing are the ones properly entitled to recover and that the suit is, in fact, serving the public purposes of the laws being invoked. Therefore, although we are fully cognizant of the settlements that several of the defendants here have entered into with

government regulators, we find that only some of the claims that plaintiffs have asserted may properly proceed.